Britain's economy is moving on the right track for the Bank of England to start cutting interest rates, Governor Andrew Bailey said on Thursday as two of his peers withdrew their votes for a rate hike.
The BoE interest rate-setting commitment voted 8-1 to keep borrowing costs at their 16-year high of 5.25% as two lawmakers who had previously called for higher rates changed positions.
Most economists interviewed by Reuters had expected one member of the Monetary Policy Committee to continue to vote for an increase in the Bank Rate.
Waima so both policymakers Jonathan Haskel and Catherine Mann joined the majority group that supported that there was no need for change. Swati Dhingra on the other hand once again gave the lone vote to reduce the Bank Rate to 5.0%.
British government bonds rose immediately after the announcement. Sterling fell against the US dollar and the euro. The yield on five-year gilts fell to its lowest level since the BoE's last policy meeting on Feb 5, down 11 basis points on the day.
Investors are increasing their bets on interest rate cuts through 2024, with a 76% chance of the first cut in June and a 75 basis point cut now seen in December.
Bailey said there had been "more encouraging signs that inflation is coming down" but he also said the BoE needed more certainty that price pressures were fully under control.
"We have not yet reached the point where we can reduce interest rates, but things are moving in the right direction," he said in a statement.
The BoE's decision followed the US Federal Reserve's announcement on Wednesday that it was still on track for three interest rate cuts this year, sparking a stock market rally.
The European Central Bank has tried to calm speculation about a series of interest rate cuts for the European zone as investors increasingly consider the fight against global inflation to have been won.
The BoE said it expected inflation to fall below its 2% target in the second quarter due to the impact of finance minister Jeremy Hunt's decision this month to freeze fuel tax again.
The BoE predicted last month that inflation would pick up a bit more later this year and most analysts and investors have said they expect the BoE to cut interest rates for the first time only in the third quarter, possibly at its August meeting.
The central bank wants to see wage growth grow more slowly before making its move.
