Date: 03.04.2024

MPC Maintain the status quo…for now

On the 21st March the Bank of England’s Monetary Policy Committee (MPC) surprised no one by holding interest rates at 5.25% for the fifth time in a row, with eight of nine committee members voting to leave rates unchanged in March. 

Despite maintaining the current status quo Andrew Bailey, head of the Bank of England, said it’s not yet the time to cut rates but stated things are moving in the right direction.

The MPC meeting took place against the backdrop of inflation dropping to 3.4% and though interest rates are unchanged in March, Andrew Bailey confirmed this was “very good news” and that rate cuts could come before inflation hits its 2% target. 

Bailey’s comments leave the door open for rate cuts earlier than expected, perhaps even as early as May, though he stated it was reasonable for the financial markets to price in two or three rate cuts this year, it is not a view he would endorse.

While the UK ended 2023 in recession, the economy did grow by 0.1% across the whole of 2023 and the prime minister’s spokesman announced the ‘economy has turned a corner’.

Notwithstanding the positive sentiment from Andrew Bailey it was warned that further conflict in the Middle East and disruption of one of the world’s busiest shipping lanes in the Red Sea, as previously reported by Metro, does pose a ‘material risk’ to prices rising again.

The dovish meeting and subsequent comments have led the GBP/USD to fall 1% to below 1.27. Current views on the UK’s economic outlook could drive the pair to new lows in the coming weeks or months, particularly when paired against the higher US rates, as traders assess the potential impact of the currency value. 

With both the US and UK expected to cut rates in 2024 the strength of the economies and currencies could come down to which country cuts their interest rates first. 

Those involved in the supply chain know all too well the impact of foreign exchange rate movements and the potential increase in cost that comes with the movements seen in March.

Shippers and manufacturers hoping for positive news and the first sign of stability after a difficult 2023 must decipher what these mixed messages mean for 2024’s economic outlook and the impact on their business in the short and medium term for the remainder of the year. 

For any assistance or if you would like to learn more about the above, or to discuss any of the issues raised here please EMAIL Laurence Burford, CFO at our Birmingham HQ.