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Bank of England keeps interest rates on hold, but shows signs of cuts to come

21 Mar 2024 3 minute read
Bank of England in London. Jordan Pettitt/PA Wire

The Bank of England has voted to keep interest rates unchanged, but showed what was perhaps the clearest sign in years that cuts could come in the months ahead.

Bank governor Andrew Bailey said the economy is “not yet at the point” where rates can be lowered, but things are “moving in the right direction”.

For the first time since September 2021, no-one on the nine-person decision-making body that sets interest rates voted for an increase.

Eight members of the Monetary Policy Committee (MPC) said rates should be kept at the current 5.25% level at least until it meets next time.

While a vote to keep rates steady had been widely expected, in a surprise move two members who last month voted to keep hiking rates changed their minds.

Encouraging signs

“In recent weeks we’ve seen further encouraging signs that inflation is coming down. We’ve held rates again today at 5.25% because we need to be sure that inflation will fall back to our 2% target and stay there,” Mr Bailey said.

“We’re not yet at the point where we can cut interest rates, but things are moving in the right direction.”

Jonathan Haskell and Catherine Mann had in February’s meeting argued that rates should rise to 5.5%, but on Thursday they joined the majority to vote for 5.25%.

One member of the committee, Swati Dhingra, voted to cut rates to 5%, repeating her vote from last month.

Every time the MPC meets, economists analyse the exact words that it uses to see what has changed since last time.

This time much of the language was unchanged, but the Bank did say that rates are “bearing down on inflationary pressures.”

The Bank is tasked to keep inflation under control, and interest rates are its main tool to do so. When rates go up, it tends to put downwards pressure on inflation.

Inflation, measured by the Consumer Prices Index, has been very high in the last two years for a series of reasons including Russia’s invasion of Ukraine.


Data released on Wednesday by the Office for National Statistics showed that inflation reached 3.4% in February, its lowest point since 2021.

The data also showed that inflation in the services sector, in the Bank’s words, “remains elevated at 6.1%”.

And despite the slowdown in inflation, “key indicators of inflation persistence remained elevated”, the Bank said.

At the MPC’s meeting there had been some disagreement within the eight-person majority which voted to keep rates unchanged.

One group in the majority thought that interest rates were “having a material impact in reducing the more persistent and slower-moving components of inflation”.

But on the other end there was a group who thought that “wage growth remained too high” and there are just “limited signs” that services inflation would return to the 2% target “sufficiently rapidly”.

Among these, “members (were) differing on the extent of evidence that was likely to be needed” before they started cutting rates.

Ms Dhingra argued that “consumer price inflation was already, and had been for some time, on a firm downward trajectory”.

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