PwC comments on May 2024 MPC meeting

Commenting on the Bank of England’s decision to hold policy rates in May. Divya Sridhar, economist at PwC said:

“The Bank of England’s Monetary Policy Committee voted 7-2 to hold rates at 5.25% today. While at the start of the year markets expected rate cuts as early as May, today’s decision now does not come as a surprise to most. This follows in the footsteps of the Fed’s decision last week to hold rates, where lack of sufficient progress towards target inflation in recent months was cited.

“Headline inflation in the UK fell to 3.2% in March 2024, below the US for the first time since its peak in 2022, but remaining above the Eurozone. The latest inflation figures show that while we are inching closer to the Bank’s 2% target, we are not there yet. The Bank has made it clear that they will only cut rates when they are confident that inflation will return to the 2% target and stay there.

“Some MPC members raised concerns that the rapid disinflation so far is due to external factors, such as the global energy market, and does not reflect easing domestic pressures. Services inflation is proving to be stickier in the UK than the US or the Eurozone, well above target at 6% in March 2024, largely driven by strong earnings growth. The increase in the National Living Wage from April 2024 could add further upward pressure to wage growth. However, a closer look at the MPC’s voting patterns shows that there is a dovish shift away from rate hikes and we are getting closer to rate cuts. Markets continue to price under the expectation of two to three 25bps cuts for 2024.”