After a long stretch of high inflation, the Bank of England finally has its 2 percent inflation target firmly within its sights.
The central bank said on Thursday that inflation is expected to reach the target in two years, and then go even lower, as policymakers inched toward cutting interest rates.
But two members voted to cut rates, compared with just one at the previous meeting in March.
“We need to see more evidence that inflation will stay low before we can cut interest rates,” Mr. Bailey said in statement.
But inflation will fall to 1.9 percent in early 2026, the bank forecast, and 1.6 percent in three years.
Though inflation has retreated a long way from its recent peak, when it climbed above 11 percent in late 2022, the central bank is wary of prematurely declaring victory.
Like many other central banks, the Bank of England is trying to find the delicate balance between cutting interest rates as inflation slows toward their targets and not overly easing monetary policy because of the risk of resurging inflationary pressures.
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The Bank of England has finally set its sights on the 2 percent inflation target, after a prolonged period of high inflation.
As policymakers slowly lowered interest rates, the central bank stated on Thursday that inflation is predicted to hit the target in two years and then decline even further.
This week, the nine-member bank rate-setting committee voted in favor of keeping interest rates at 5 percent, which is the highest level since early 2018 and has been there for nine months. However, two members voted in favor of rate cuts, as opposed to just one at the March meeting before. Rate cuts were probably coming, as the bank’s governor, Andrew Bailey, reaffirmed.
Mr. Bailey stated in a statement, “We need to see more evidence that inflation will stay low before we can cut interest rates.”. “I think things are heading in the right direction. “.
It is anticipated by the bank that inflation will hover around 2.5 percent for the majority of the next 18 months. But according to the bank’s forecast, inflation will drop to 1.9% in the first quarter of 2026 and 1.6% in three years. Even though inflation has significantly decreased since it peaked in late 2022, when it rose above 11 percent, the central bank is hesitant to declare victory too soon.
Similar to numerous other central banks, the Bank of England is grappling with striking a careful balance between reducing interest rates when inflation approaches their objectives and avoiding unduly loosening monetary policy due to the possibility of reinstating inflationary pressures.
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