What to expect from today’s interest rate decision – with Bank of England ‘between a rock and a hard place’
At 12pm, the Bank of England will announce its latest interest rate decision, with markets widely expecting the nine-person Monetary Policy Committee to opt for a hold at 3.75%.
Just three weeks ago, most analysts were predicting a cut to 3.5%, but the conflict in the Middle East has diminished any hopes of that happening.
The unpredictable nature of war and Donald Trump – and their impact on UK inflation – has left many experts thinking the Bank will take a “wait-and-see” approach to rate cuts this time around.
As a result, close attention will be paid to any guidance the committee offers about the path ahead and the prospect of future cuts.
‘Difficult balancing act’
“Investors will closely scrutinise policymakers’ comments for clues on how persistent they expect inflationary pressures to be,” according to Trading Economics.
“While most economists still expect rate cuts later in the year, the timing and extent remain highly uncertain.”
Danni Hewson, head of financial analysis at AJ Bell, said the Bank’s committee members are “stuck between a rock and a hard place”.
“Markets are already pricing in the unwelcome return of uncomfortable levels of inflation, with bond yields rising significantly and investors eyeing the UK as particularly sensitive to an energy shock,” she said.
“Preventing inflation from spiralling once again will be at the forefront of rate setters’ minds.
“But they face a difficult balancing act of curbing price hikes without completely stalling the country’s economic engine, which is already spluttering.”
Hawks and doves could unite
Hewson added: “The key consideration will be the duration of the conflict, and whether it ends decisively or if attacks on shipping and energy infrastructure continue beyond any declaration of victory by the US president.
“Faced with an overwhelming number of unpredictable variables, nobody expects the Bank to do anything other than wait and see.”
In the last few meetings, votes to hold or cut have been close, with a split of 5-4, so it’s worth noting that today’s decision could finally see the hawks and the doves (those who are pro and anti cuts) unite in their approach.
