United Kingdom Interest Rates: May 2024

Interest rates reached 5.25% in August 2023 and have held steady ever since.

Once again on 9th May 2024, the MPC (Monetary Policy Committee of the Bank of England, BOE), held rates steady at 5.25%. A number of experts and analysts felt that the Bank of England would cut interest rates this time around, but data showed that inflation was stickier than otherwise predicted. A rate cut is still expected this year, but the timing may have just been kicked slightly down the road. Interestingly, the Deputy Governor of the  Bank of England along with external member Swati Dhingra voted for an immediate cut in a 7 – 2 split favouring keeping interest rates steady

However, the Governor of the Bank of England, Andrew Bailey, has given the clearest hint yet that interest rates may soon be cut by indicating that he feels the financial markets have under-priced the pace of easing in the coming months. The governor further advised that before the next meeting on June 6th, there are two rounds of data regarding inflation and wages which will be highly important regarding any rate cut. Governor Bailey went on to say, “It’s likely that we will need to cut bank rates over the coming quarters and make monetary policy somewhat less restrictive over the forecast period, possibly more so than currently priced into market rates”. 

Whilst the governor was not actually confirming that 6th June will see an interest cut saying that date is “neither ruled out or a fait accompli’, this is the first time he has addressed investors/financial markets directly regarding expectations on future interest rate cuts. After the governor’s comments, traders priced in a 25 basis point as 50/50 in June but have fully priced in a cut in interest rates in August. The markets are now suggesting that there will be 59 basis points cut in 2024 as opposed to early suggestions of 54 basis points.

By the end of the second quarter, officials in the Bank of England feel inflation will be down to 2% (Bank of England target) due mainly to lower energy bills. These officials have further advised that they expect inflation to rise slightly throughout Q3 and Q4 but at a gentler pace than previously expected, though they warned geopolitical factors might negatively impact inflation. Interestingly, a number of experts and economists have advised that inflation may well fall below the target figure of 2% by the end of Q2, forcing the Bank of England into cutting interest rates.