The Bank of England in the City of London, after figures showed Britain’s economy slipped into a recession at the end of 2023.
Yui Mok | Pa Images | Getty Images
LONDON — The Bank of England is widely expected to keep interest rates unchanged at 5.25% on Thursday, but economists are divided on when the first cut will come.
Headline inflation slid by more than expected to an annual 3.4% in February, hitting its lowest level since September 2021, data showed Wednesday. The central bank expects the consumer price index to return to its 2% target in the second quarter, as the household energy price cap is once again lowered in April.
The larger-than-expected fall in both the headline and core figures was welcome news for policymakers ahead of this week’s interest rate decision, though the Monetary Policy Committee has so far been reluctant to offer strong guidance on the timing of its first reduction.
The U.K. economy slid into a technical recession in the final quarter of 2023 and has endured two years of stagnation, following a huge gas supply shock in the wake of Russia’s invasion of Ukraine. Berenberg Senior Economist Kallum Pickering said that the Bank will likely hope to loosen policy soon in order to support a burgeoning economic recovery.
Pickering suggested that, in light of the inflation data of Wednesday, the MPC may “give a nod to current market expectations for a first cut in June,” which it can then cement in the updated economic projections of May.
“A further dovish tweak at the March meeting would be in line with the trend in recent meetings of policymakers gradually losing their hawkish bias and turning instead towards the question of when to cut rates,” he added.
At the February meeting, two of the nine MPC decision-makers still voted to hike the main Bank rate by another 25 basis points to 5.5%, while another voted to cut by 25 basis points. Pickering suggested both hawks may opt to hold rates this week, or that one more member may favor a cut, and…
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