The Bank of England’s Monetary Policy Committee (MPC) decided to reduce the Bank Rate by 25 basis points to 5.00%. It had announced the increased rate at its meeting on 3rd August 2023, so this reduction comes exactly a year after reaching the peak level. As expected, it was a close decision, with a vote of 5-4 in favour of reducing the rate.
At the time of its last meeting six weeks ago (mid-June), there had been a fairly clear indication that rates would be reduced at this meeting but as time went on and no significant comments from any of the MPC members, speculation increased that this change could be postponed until the September meeting (or even later).
In the end, the move from a 7-2 vote to keep the rate unchanged in June to the 5-4 majority in favour of a cut meant only two people actually changed their position, although, crucially, this included the Bank’s Governor, Andrew Bailey. The 3rd “change” in the voting came as a result of the retirement of Ben Broadbent (who voted for no change in June) and his replacement by Clare Lombardelli who voted for a cut this time. The only one of the Bank employees on the MPC to vote to keep the Bank Rate at 5.25% was Huw Pill, the Bank’s Chief Economist.
In the press conference after the announcement, the Governor noted that while lower inflation has paved the way for this cut in the Bank Rate, the task of controlling is not yet completed. He cautioned that this is not an indication of a sharp fall over the coming months.
When asked if there would be any more interest rate cuts, or if this is the only one, the Governor responded that he has no view on the path of interest rates and that the Bank would decide from meeting to meeting. This indication is significant and means that a further cut in September is extremely unlikely and it will be November, at the earliest, before there is another cut.
This will be after the first budget from the new Government which has been announced for 30th October and will allow the MPC to consider the likely impact on inflation and the economy from any announcements. One key measure that the MPC has been tracking in its assessment of inflation has been changes in wages; while this remains higher than is perhaps ideal, the pace of growth has moderated recently. The recent announcements of increases in wages for public sector staff is unlikely to have much impact on inflation as very few of them are involved in selling services that would have to increase in price (unlike, for example, the April increase in the minimum wage which caused a spike in service sector wages for things like restaurants).
You can get the Monetary Policy Summary and minutes of the MPC meeting from the Bank’s website at https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2024/august-2024 or request this from MTA.