Bank of England sees economy 'moving in right direction' for rate cuts

investing.com:

By William Schomberg and Suban Abdulla

LONDON (Reuters) -Britain's economy is moving in the right direction for the Bank of England to start cutting interest rates, Governor Andrew Bailey said on Thursday as two of his colleagues dropped their votes for a rate hike.

The BoE's committee of interest rate-setters voted 8-1 to keep borrowing costs at their 16-year high of 5.25% as the two officials who had previously called for higher rates changed their stance.

Most economists polled by Reuters had expected one member of the Monetary Policy Committee (MPC) to continue voting for an increase in Bank Rate.

But both Jonathan Haskel and Catherine Mann joined the majority in favour of no change. Swati Dhingra again cast the lone vote to cut Bank Rate to 5.0%.

Bailey said there had been «further encouraging signs that inflation is coming down» but he also said the BoE needed more certainty that price pressures were fully under control.

«We're not yet at the point where we can cut interest rates, but things are moving in the right direction,» he said in a statement.

British government bonds rallied immediately after the announcement. Sterling fell against the dollar and the euro. The five-year gilt yield fell to its lowest level since the BoE's last policy meeting on Feb. 5, down 11 basis points on the day.

Investors slightly increased their bets on interest rate cuts through 2024, with a 76% chance of a first cut in June and a reduction of 75 basis points now fully priced in by December.

«Every month that passes without an upside inflation or wage growth surprise brings the MPC closer to cutting interest rates,» said Rob Wood, chief UK economist of consultancy Pantheon Macroeconomics.

The BoE decision follows the U.S. Federal