Official Bank Interest Rate (GBP MPC) votes refer to the results of the voting of MPC members regarding the Bank of England’s official interest rate, also known as the Bank Rate or Base Rate. The MPC is responsible for setting UK monetary policy to achieve the government’s inflation target..
The MPC consists of nine members, including the Governor of the Bank of England, the Deputy Governor, and external members appointed by the Chancellor of the Exchequer. During its regular meetings, the Committee discusses the economic situation and determines the appropriate level of the official interest rate..
The results of MPC members’ vote are usually expressed as a split between those who support raising interest rates, those who support cutting it, and those who support keeping it unchanged. The voices provide insight into the Committee’s views on the current state of the economy and its sentiments regarding future monetary policy adjustments.
For example, a vote to raise interest rates indicates concerns about inflationary pressures or a frantic economy, while a vote to cut interest rates indicates concerns about weak economic growth or deflationary risks. When votes are divided, it reflects divergent views within the Committee..
MPC minutes are published shortly after the decision is taken, providing more detailed insights into the deliberations and factors influencing the decisions of MPC members. These voices and minutes are closely monitored by financial markets and analysts as they can have a significant impact on currency exchange rates, bond yields and other financial indicators..
The Monetary Policy Committee (MPC) works with the aim of achieving the government’s inflation target. In the UK, the current inflation target is set at 2% as measured by the Consumer Price Index (CPI). The committee’s decisions are aimed at maintaining price stability while supporting economic growth and employment.
Bank of England’s Monetary Policy Committee holds interest rate steady in Mayat 5.25%
Bank of England’s Monetary Policy Committee aims to achieve 2% inflation and support growth and employment. At its meeting ending on 8 May 2024, the Committee decided, by a vote of 7 to 2, to keep the bank interest rate at 5.25%, while two members favored reducing it to 5%.
The Committee’s forecast for economic activity and inflation in the May report indicates a decline in the bank interest rate from 5.25% to 3.75% by the end of the forecast period, compared to 3.25% in February.
Internationally, growth results have been stronger in the US than in the eurozone, with inflationary pressures moderating in both regions. In the UK, GDP is expected to rise by 0.4% in the first quarter of 2024 and 0.2% in the second quarter, with demand growth remaining weaker than potential supply growth. Economic recession is expected to appear in 2024 and 2025 and continue after that due to restrictive monetary policy.
In terms of inflation, consumer price inflation in services fell to 6.0% in March. Labour market evolution still difficult to gauge, labour market tight despite easing wage growth.
CPI inflation eased to 3.2% in March and is expected to return to near the 2% target soon, but could rise to 2.5% in the second half of the year due to lower underlying energy impacts..
The committee expects inflation to reach 1.9% in two years and 1.6% in three years. The Committee believes that the inflation target must always be achieved, with a willingness to adjust monetary policy according to economic data to achieve the target in a sustainable manner. The committee will closely monitor the indicators to ensure that the target of sustainable inflation is achieved.
Bank of England’s Monetary Policy Committee keeps interest rate at 5.25%
At its meeting in June 2024, the Bank of England’s Monetary Policy Committee decided to maintain the bank interest rate at 5.25% by a vote of 7 to 2. A rate cut of 0.25 percentage points to 5% was proposed by two members.
The twelve-month CPI inflation rate fell to 2.0% in May compared to 3.2% in March. Indicators of short-term inflation expectations continued to moderate, and inflation in the second half of the year is expected to rise slightly. In terms of economic activity, the statement notes that GDP grew more strongly than expected in the first half of the year, but business surveys point to a slower pace of core growth..
The MPC remains concerned about labor market stability and inflation. The Committee considers that the labour market remains relatively tight but is constantly relaxing, and follows the indicators of wage growth and price inflation for services carefully..
The 2% inflation target remains the UK’s main monetary policy priority. The Committee pledges to maintain price stability and return inflation to the target in a sustainable manner in the medium term..
The Committee confirms that it is ready to adjust monetary policy in accordance with future economic data to ensure the achievement of the inflation target. The Committee will continue to monitor economic indicators, developments in the labor market, wage and services inflation, and will review monetary policy in accordance with available information and assess the evolution of potential risks..
Accordingly, the Committee will remain under review to determine how long the interest rate should be maintained at its current level in accordance with future economic conditions.
The impact of the Bank of England directives on the market price of the pound sterling
The pound fell after the Bank of England left interest rates unchanged at 5.25% but issued guidance suggesting it was close to a 25 basis point rate cut.
The odds of a rate cut rose in August after it was revealed that the decision to keep interest rates unchanged was “well balanced” for three MPC members who voted to keep them.
This information suggests that the decision to suspend was close. Reflecting the higher prospects of an August rate cut, the GBP/EUR exchange rate fell to 1.1826 and GBP/USD fell to 1.2690.
Sterling rose on Wednesday after UK services inflation — which the bank wants to see lower before rate cuts — reached a stronger-than-expected level of 5.7%. But the minutes of the meeting indicate that MPC members are increasingly confident that it will continue to decline from here.
The minutes of the meeting, referring to the thinking of a group of MPC members, said that “the bullish news in service price inflation compared to the May report did not significantly change the contraction path the economy was on.” “For these members, the political decision at this meeting was well balanced.”
With the prospect of an interest rate hike in August, the pound may find it difficult to record new highs against the euro. At the same time, trading against the dollar will continue to be heavily influenced by developments related to the US economy and interest rates.
Valentin Marinov, head of foreign exchange strategy at Crédit Agricole, says: “We hold our view that there are a lot of positives in the price of the pound and we see downside risks for the currency against the US dollar and the euro from current levels.” However, other analysts do not believe that the Bank of England poses physical headwinds to performance of sterling.
