Today, at noon (British Summer Time), the Bank of England will announce the latest monetary policy decision for the United Kingdom’s interest rate.
Interest rates today
The BoE is largely expected by analysts to keep interest rates steady, again, at 5.25%. This, if it plays out, will be the sixth meeting in a row.
So why is there so much excitement surrounding the decision, and the BoE press conference following shortly afterwards?
BoE interest rate decision news
“The Old Lady isn’t far from the first cut,” says Pepperstone analyst and research strategist Michael Brown, who thinks that the first decision to cut interest rates from the BoE could come as early as next month.
The May MPC meeting comes at an interesting juncture for the BoE, as headline inflation continues to fall back towards target, unemployment ticks higher, and the economy continues to recover from the late-2023 recession.”
This means we may effectively be seeing the last round of ‘keeping the status quo’ today, with changes to UK rates imminent on the horizon – and analysts and investors alike will be watching closely for clues.
The clue is in the caution
The BoE are likely to be keeping their cards close to their chests on this one.
“While a cut at the next meeting in June seems likely, policymakers are unlikely to pre-commit to such action,” says Brown, “instead continuing to seek additional data confirming the economy evolving in line with the latest forecasts.”
Another interesting clue comes courtesy of a recent speech and presentation by the BoE’s Executive International Director, James Talbot at end April.
Monetary policy changes due to climate change?
Talbot spoke on climate change and how it was likely to affect things like the central bank’s monetary policy decisions.
Interestingly, the presentation implied a longer macro-view on monetary policy decisions, thanks to climate change, than is usual. Which may well imply even more caution, when it comes to rate cutting, than before.
Impact on inflation will depend on how demand and supply are affected. But likely we can expect disruptions – via impacts on food production, goods trade and supply chains – to create short-term price pressures… Increased frequency and severity of shocks could make it harder for monetary policy to “look through… So far macroeconomic impacts of climate mitigation policies have been modest. But global carbon prices could rise substantially from current levels as governments seek to meet stated/legislated timelines for net zero. {This affects the] range of potential paths that policy action could take (e.g. slow and orderly, delayed and fast). Regardless of path, monetary policy makers will have to understand and manage a prolonged relative price shift.”