CIBC Private Wealth
May 10, 2024
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The Bank of England (BoE) concluded its May meeting by announcing it was holding its policy interest rate steady for a sixth consecutive meeting. Statements from the BoE and comments from officials point to a strong likelihood of beginning to lower interest rates this year, which excited market participants. The question now turns to when the central bank will begin loosening monetary policy.
- The BoE left its key interest rate unchanged at 5.25% at its May meeting, keeping it at its highest level since 2008. This was the sixth straight rate hold from the BoE as officials believe its current level is helping to bring down inflation. The decision was widely expected by markets.
- Among the nine BoE officials, seven elected to hold the policy rate steady. The other two voted to reduce the Bank Rate by 25 basis points. This suggests rate cuts are on the minds of officials, but several still need to see inflationary pressures moderate further.
- The BoE expects inflation to return to its 2% target in the short term but acknowledged that risks to its inflation outlook linger. Geopolitical tensions could help push up commodity prices and increase supply chain disruptions, thus increasing inflationary pressures. Economic growth remains modest and might need some help from looser monetary policy to reignite activity.
- BoE governor Andrew Bailey believes inflation is poised to return to 2% this quarter. He acknowledged that there is a possibility of a rate cut at the BoE’s next meeting in June, but it is not a foregone conclusion.
The BoE appears to be on track to begin lowering interest rates relatively soon. The Bank of Canada and European Central Bank seem to be on a similar track. Conversely, there might not be interest-rate cuts from the US Federal Reserve Board until later in the year given the different economic dynamics taking place in the world’s largest economy.
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