Bank of England: On hold as expected with an 8-1 vote

As expected, the Bank of England’s (BoE) Monetary Policy Committee (MPC) voted to keep rates on hold at 4.5%. Committee member Swati Dhingra was an outlier who voted for a 25bp cut.

The central bank continues to see a “gradual and careful approach to the further withdrawal of monetary policy restraint” as appropriate.

Not much in the domestic picture has changed for the BoE: On domestic growth, although GDP numbers have been a bit stronger than expected, the committee today pointed out weaker signals coming from the business surveys.

On inflation: Although inflation has been a touch stronger than expected, the BoE sees domestic and wage pressures as moderating (but remaining elevated) and still expects inflation to fall back after an expected rise in CPI in coming months. The committee pointed to the latest set of wage settlements and pay expectations as continuing to suggest a slowing in pay growth over the course of this year.

The main changes flagged up front since the last meeting were external ones… increased trade uncertainty, tariff, geopolitical uncertainty, a global rise in financial market volatility and Germany’s fiscal plans.

But–as with other central banks–the BoE is dealing with significant external sources of uncertainty… The main changes flagged up front since the last meeting were external ones. The minutes flag increased trade uncertainty, tariff, geopolitical uncertainty, a global rise in financial market volatility and Germany’s fiscal plans. That mixed and changeable backdrop presumably increases the justification for them to continue with their “gradual and careful” approach to policymaking.

…and the BoE remains worried about inflation persistence: Post-Q3 inflation is on the watchlist. The bank is still expecting a rise in CPI inflation to 3.7%-ish in Q3. They (unsurprisingly) say they will be paying close attention “to any consequent signs of more lasting inflationary pressures”.

Evolution of risk scenarios on the way in May: The central bank has been using a scenarios approach to help assess risks around medium-term inflation. The minutes for today’s decision preview this and it sounds like the risk scenarios will evolve a bit. They are currently focused on two risks in particular:

1. The risk of long-lasting weakness in demand, partly reflecting global and domestic uncertainty and which could push down on inflation
2. The risk of more persistence in domestic wages and prices from constrained supply and second round effects post-Q3.

My forecasts: I have been expecting the BoE to continue cutting rates roughly once a quarter, with the next rate cut in May. I don’t see a reason to change that central case after today’s decision, but there will be several key developments and data to digest before then. By the May meeting the BoE should have more information to go on generally–including on Trump’s plans for reciprocal tariffs and UK fiscal policy after next week’s Spring Statement.

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