The Bank of England took steps to cut interest rates, as a second official backed a cut and Governor Andrew Bailey said more cuts were likely to be implemented than investors expected.
On Thursday, the Bank of England (BoE) announced that the Monetary Policy Committee (MPC) decided by voting 7-2 to keep rates at a 16-year high of 5.25%, after Deputy Governor Dave Ramsden joined Swati Dhingra in voting for a reduction to 5%.
Analysts polled by Reuters mostly expected another 8-1 split to hold the rate.
Sterling fell against the US dollar and euro after the announcement while British government bond yields fell sharply as investors increased their bets on an upcoming BoE rate cut.
Bailey told a news conference that it was possible that the BoE would have to cut rates more than the market expected. The next BoE policy decision is on June 20.
The MPC has now kept rates on hold for six consecutive meetings. The first reduction since March 2020 was at the start of the COVID-19 outbreak – could provide a potential boost for Prime Minister Rishi Sunak.
He told voters that the economy was turning around but was struggling to reduce the opposition Labor Party's lead in the polls ahead of an election later this year.
"The Committee will consider upcoming data releases and how these data inform the assessment that the risk of persistent inflation is diminishing," the BoE reported.
"Basically, the Committee will review how long the bank rate should be maintained at the current level."
Paul Dales, chief UK economist at Capital Economics, said the BoE was giving indications that it was getting close to cutting rates. "We think some inflation data and slowing wages may be enough to force it to cut rates at the next meeting in June, if not at the next meeting in August," Dales said.
