Bank of England Hold Rates, Extends Bond Reduction Plan

• The Bank of England (BoE) held interest rates at 5.0% on Thursday and voted to run down its stock of British government bonds by another 100Bn pounds ($133Bn) over the coming 12 months, a move that could weigh on the government's finances.
• The Monetary Policy Committee voted 8-1 to keep rates on hold. Only external member Swati Dhingra voted for a further quarter-point rate cut after last month when the BoE delivered its first reduction to borrowing costs since 2020.
• Economists polled by Reuters had forecast a 7-2 vote to keep rates on hold after last month's tight 5-4 decision to cut rates from their previous 16-year high.
• The BoE struck a more cautious tone regarding its inflation pressures than the Fed with Governor Andrew Bailey stating that cooling inflation pressure meant the BoE should be able to cut rates gradually over the months ahead. "But it's vital that inflation stays low, so we need to be careful not to cut too fast or by too much," he said in a statement.
• Investors think the British central bank will cut rates more slowly than the Fed over the next year, citing more persistent inflation pressure. The BoE said inflation was likely to rise to around 2.5% by the year's end from 2.2% in the most recent data, compared with a previous forecast of around 2.75%. Lower oil prices contributed to the downgrade.
• Financial markets now expect the BoE to cut rates in quarter-point moves four or five times by June. By contrast, they see around seven such cuts in the U.S., even after its outsized move on Wednesday.

(Source: Reuters)