Bank of England cuts bank rate to 5% as inflation remains key concern

This adjustment comes as the MPC continues its efforts to meet the 2 per cent inflation target, a key mandate of the Committee. Recent data showed that the Consumer Prices Index (CPI) inflation was at 2 per cent in May and June, aligning with the target. However, inflation is expected to rise to around 2.75 per cent in the latter half of the year due to base effects from declining energy prices last year, which have obscured persistent domestic inflationary pressures.

The Committee's decision to lower the Bank Rate reflects its assessment of current economic conditions. While GDP growth has been robust in the first half of 2024, underlying momentum appears weaker, and there are signs of softening in the labour market. Private sector wage growth has eased to 5.6 per cent, and services consumer price inflation has declined to 5.7 per cent, the Committee said in a statement.

The MPC remains cautious about the risks of persistent inflationary pressures. Although some progress has been made in mitigating these risks, the Committee acknowledges the potential for second-round effects to sustain inflation at elevated levels. Factors such as stronger-than-expected demand and structural shifts in the labour market could exert more persistent pressure on wages and prices.

Despite the cut, the MPC emphasises that monetary policy will need to remain restrictive for an extended period to ensure inflation returns sustainably to the 2 per cent target. The Committee will continue to monitor inflationary risks closely and adjust policy as necessary in future meetings.

The updated projections for economic activity and inflation, published in the August Monetary Policy Report, suggest that while inflationary pressures may ease over the coming years, vigilance remains crucial in the face of potential economic uncertainties.

Fibre2Fashion News Desk (KD)