The Bank of England is set to announce its monetary policy decision on Thursday, marking the second meeting of 2025. Market watchers eagerly anticipate this announcement, with widespread expectations that the central bank will maintain its benchmark rate at 4.50%. This comes after a reduction of 25 basis points last month. Elevated wage growth remains a key factor influencing the Bank's cautious approach, as the UK jobs market demonstrates resilience despite recent employer tax increases.
The ILO Unemployment Rate held steady at 4.4% in the three months leading up to January, indicating a stable employment landscape. However, private sector employment has shown signs of stagnation, with a gentle decline observed throughout 2024. Notably, the payroll-based figures do not account for government-heavy sectors. The Bank of England's upcoming decision is eagerly awaited by investors looking for signs of future economic direction.
In a historic context, John Maynard Keynes once advised caution in economic decision-making, emphasizing the importance of being "very slow and wary." This sentiment resonates as the Bank navigates its course amid complex economic indicators. Catherine Mann, a member of the committee, famously shifted her stance from an arch-hawk to an arch-dove earlier this year, advocating for a more aggressive 50bp rate cut in February. She is expected to diverge from the committee once again and vote for another rate cut.
Despite these internal differences, the Bank's decision-making process remains focused on addressing current economic challenges. The year-on-year inflation rate, currently just above 6%, is projected to decrease in the coming months. This anticipated decline may provide some relief amid ongoing wage increases and pending tax hikes. The National Living Wage has recently risen by nearly 7%, adding another layer of complexity to the economic landscape.