BoE Holds Rates As 2 MPC Members Vote For Cuts

The FTSE 100 soared to an unprecedented high today, adding 0.32% so far, buoyed by the Bank of England's (BoE) latest monetary policy stance. In an expected move, the central bank maintained its benchmark interest rate, but fuelled expectations of potential reductions in borrowing costs in the near future. They key indexed bounced on the announcement.

The Bank of England's Monetary Policy Committee (MPC) held interest rates steady, with recent developments igniting speculation that rates might soon be on the downtrend. The optimism towards easing was partly prompted by statements from a second official advocating a rate cut, and by the central bank's Governor, Andrew Bailey, who expressed a positive outlook.

MPC voted 7-2 for keeping rates steady, with the 2 both voting to reduce. According to the bank “At its meeting ending on 8 May 2024, the MPC voted by a majority of 7–2 to maintain Bank rate at 5.25%. Two members preferred to reduce Bank Rate by 0.25 percentage points, to 5%,”

As the anticipation of interest rate cuts increased, the sterling responded by edging lower against a robust US dollar. Market analysts interpreted the currency's slight retreat as a reflection of investor sentiment, anticipating an accommodative monetary environment that would favour equities over fixed-income assets.

One signal for a reduction is expected to be inflation, with the BoE expecting rates to come down below its' 2% mandate in the next couple of years. It said “CPI inflation is expected to return to close to the 2% target in the near term, but to increase slightly in the second half of this year, to around 2½%, owing to the unwinding of energy-related base effects,”.

In the broader economic landscape, employment data signalled some resilience within the UK job market. Despite a backdrop of economic uncertainties, the pay rates for temporary staff witnessed the sharpest accrual in nearly a year. Moreover, the scale-back in hiring activity was less pronounced than in previous months, suggesting that employers are cautiously navigating through a phase of economic adjustment.

Stability as far as markets are concerned provides few shocks, and that means corporate health and earnings will continue to be allowed to stand on their own merits.