The Bank of England has kept the bank rate steady at 4.25%, as expected. This decision came from a 6-3 vote. Members Dhingra, Taylor, and Ramsden wanted to lower the rate by 25 basis points. UK GDP growth remains weak, and the labor market is loosening. Inflation risks are seen as two-sided. A careful approach to easing policy is deemed suitable. The path of monetary policy can change and will be reviewed at each meeting. Current restrictions will continue until inflation risks move closer to the 2% target. A rate cut in August may be possible, depending on upcoming data and global circumstances. The statement is similar to previous ones, with “two-sided risks” to inflation supporting the choice to pause. After the announcement, the pound dipped slightly from around 1.3428 to 1.3416, hitting a low of 1.3405 briefly. With this decision, it seems the Bank is patiently observing. They are maintaining current conditions while leaving the option open to ease in the near future if necessary. The split in the committee, with three members wanting a cut, suggests there may be growing support for lowering rates, even if it’s not yet strong enough to act on. This disagreement is significant, showing us where individual preferences lie. The economy hasn’t shown strong growth. Its flat growth offers little to counter the softening labor market. Hiring is slowing down, and wage increases are stabilizing rather than speeding up. Supply and demand pressures appear to be easing. However, price growth remains high and inconsistent, which is why caution persists. Inflation risks are balanced, which is important. Decision-makers are clear that both upward and downward risks exist, affecting how we position ourselves. In summary, we should be flexible, not fixed. Market reactions have been calm, though slightly dovish. Sterling weakened a bit after the announcement—a minor adjustment in future rate expectations—but the change was short-lived. Volatility did not increase significantly. Yields adjusted to reflect a more accommodating stance over the medium term, particularly as we approach year-end, but expectations depend on data. It’s crucial to focus on potential surprises. The decision for any shift in August hinges on three main factors: inflation rates, wage trends, and service sector output. Each could change before the next rate meeting, clarifying how far the Bank will go. No single data point might trigger action, but the overall sequence will be important. Sharp disinflation or lower wage growth could push the committee towards a dovish stance. We should note that the tone of policy guidance has not changed—the Bank is committed to maintaining restrictions until evidence shows prices are closer to the target. This perspective is based on data. Unlike previous tightening cycles, forward guidance is uncertain, which gives us some leeway. There won’t be automatic adjustments; everything now rests on the data leading up to August. Volatility in markets might remain stable in the short term but could change quickly if inflation drops sharply or if geopolitical risks arise unexpectedly. It might be wise to consider lower rate structures with flexibility to adjust, especially through intermediate expiries. Flexibility is preferred here. If easing accelerates, near-term steepener curves may reassert, but further movements will depend on growth trends. While the majority remains firm, the voting lean indicates growing unease. What matters is this lean, rather than just the numbers. The dissent from three members shows an emerging willingness—though not yet a consensus—to counterbalance falling growth with earlier actions. We will closely monitor any changes in stance during upcoming testimonies and minutes. Adjusting language could significantly shift our perspective. At the short end, expectations are cautiously firming for a summer move. In August, we’ll see if more than three members are ready for that step. Data will determine this. Until then, we’ll stay balanced. We suggest viewing duration strategically and positioning for responsiveness rather than trying to predict outcomes.

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