BoE maintains rates at 4.25%
The Bank of England didn’t have any surprises up its sleeve as it held rates at 4.25%. This follows a quarter-point cut at last month’s meeting. The MPC vote indicated that six members voted to hold while three voted to lower rates. The markets had projected that the vote would be 7-2 in favor of holding rates.
Today’s decision to hold rates was widely expected, but that doesn’t mean there aren’t economic signals which support a rate cut. The UK economy is in trouble and GDP came in at -0.3% in April, its deepest contraction in 18 months.
The weak economy could desperately use a rate cut, but inflation remains stubbornly high and a rate cut would likely send inflation even higher. Annual CPI remained at 3.4% in May, its highest level in over a year.
The geopolitical tensions, most recently the war between Israel and Iran have led to greater economic uncertainty and complicated any plans to lower rates. The BoE is expected to lower rates one or twice in the second half of the year, with the direction of inflation being a key factor in the Bank’s rate path.
Federal Reserve holds rates but notes economic uncertainty
The Federal Reserve held rates at Wednesday’s meeting for a fourth straight time. The Fed noted that inflation remains higher than the target but said the labor market remains strong. President Trump has pushed hard for the Fed to lower rates but Fed Chair Jerome Powell has stuck to his position and repeated on Wednesday that current policy was the most appropriate to respond to the economic uncertainty.
