Bank of England hints at potential interest rate cut in the summer, keeping rates steady at 5.25%

The Bank of England is considering a rate cut this summer as inflation remains low, despite keeping borrowing costs at a 16-year high of 5.25 per cent. Governor Andrew Bailey stated that a rate cut at the next Monetary Policy Committee meeting in June is not ruled out, but also not guaranteed.

Economist James Smith from ING noted that the Bank’s message had a more optimistic tone, hinting at a possible rate cut in the near future. However, the MPC voted 7-2 to keep the benchmark rate unchanged, with only two members voting for an immediate cut.

Bailey mentioned that there has been positive news on inflation, with expectations that it will fall close to the bank’s 2 per cent target in the coming months. The MPC will consider upcoming data releases, including inflation and jobs figures, before making a decision at the June 20 meeting.

The possibility of a rate cut has political implications ahead of the general election, with Prime Minister Rishi Sunak aiming to address the cost of living crisis. European central banks are also considering rate cuts, diverging from the US Federal Reserve.

Investors are predicting a 45 per cent chance of a rate cut by June, with interest rate-sensitive two-year gilt yields and the FTSE 100 responding to the news. The bank’s forecasts indicate below-target inflation in the coming years, suggesting potential steeper rate cuts than expected.