In a statement today, the central bank said the committee voted 7-2 to keep rates unchanged, with the two dissenters backing a reduction by 0.25 percentage point. Last time, only one voted for a quarter-point cut.

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Twelve-month consumer price index (CPI)-based inflation fell to 3.2 per cent in March from 3.4 per cent in February. CPI inflation is expected to return to close to the 2-per cent target in the near term, but to increase slightly in the second half of this year, to around 2.5 per cent, owing to the unwinding of energy-related base effects, the statement said.

There continue to be upside risks to the near-term inflation outlook from geopolitical factors, although developments in the Middle East have had a limited impact on oil prices so far, it noted.

CPI inflation is projected to be 1.9 per cent in two years’ time and 1.6 per cent in three years. Key indicators of inflation persistence are moderating broadly as expected, although they remain elevated.

Following modest weakness last year, UK gross domestic product (GDP) is expected to have risen by 0.4 per cent in the first quarter (Q1) 2024 and to grow by 0.2 per cent in Q2, the statement said.

Despite picking up during the forecast period, demand growth is expected to remain weaker than potential supply growth throughout most of that period.

A margin of economic slack is projected to emerge during 2024 and 2025 and to remain thereafter, in part reflecting the continued restrictive stance of monetary policy, it noted.

The committee feels the labour market continues to loosen but remains relatively tight by historical standards. Annual private sector regular average weekly earnings growth declined to 6 per cent in the three months to February, although that series tends to be volatile. Alternative indicators also suggest easing pay growth.

Fibre2Fashion News Desk (DS)