MPC Commentary: Does it hint at an imminent interest rate cut?

■ The Bank of England decided to keep the policy rate unchanged by a narrow 5-4 vote, believing a more cautious approach to further easing is necessary.  

■ Given the cooling labor market and slowing inflation, a decision on whether to cut interest rates will be made in March or April.  

   On the 5th, the Bank of England's (BOE) Monetary Policy Committee (MPC) meeting decided to maintain the policy rate at 3.75%. Of the nine members, five supported keeping the rate unchanged, while four voted for a 25-basis-point cut, indicating a clear division. The published Monetary Policy Report (MPR) indicated that due to the impact of household support measures included in the 2025 budget on energy prices, the Consumer Price Index (CPI) is expected to fall back to near the 2% target level after April. While acknowledging that weakening demand and easing labor market conditions still pose inflationary risks in some areas, the report noted that wage growth and service prices are generally slowing, and the risks from persistent inflation are continuing to decline. Based on current evidence, a policy rate cut is highly likely in the future, but whether to further ease will be a "marginal judgment," the magnitude and timing of which will depend on changes in the inflation outlook. 

 
The CPI rose 3.4% year-on-year in December, but the growth rate of average private sector wages (excluding bonuses), a key focus of the Bank of England, slowed to 3.6% in the three months to November, 0.1 percentage points lower than the Bank of England's November forecast. With the unemployment rate continuing to rise to 5.1%, the labor market continues to ease, and wage growth is expected to slow further. Bank of England Governor Bailey stated that the risks from persistent inflation are continuing to decline, there is still room for further policy easing, and he understands the market's 50/50 pricing in a March rate cut. In the short term, the expectation of an April rate cut has exceeded 80% in financial markets. The market will focus on the wage index and unemployment rate for the three months to December, to be released on the 17th, and the January CPI data, to be released on the 18th, to determine whether a March rate cut will become more realistic.