The Bank of England has announced that it is holding interest rates steady at 5.25%. This is the second time in a row where it has kept the rates unchanged.
The Monetary Policy Committee voted with a 6-3 majority to hold. Last month, the decision to hold was made 5-4.
In the press conference to accompany the decision, Bank governor Andrew Bailey said that there is no room for complacency in the fight against inflation. It's "much too early to be thinking about rate cuts", he added. He also said that policymakers are on the lookout for signs of "inflation persistence" and that another rate rise could not be ruled out.
The announcement comes a day after the US Federal Reserve chose a similar path to keep the federal-funds rate unchanged, with chair Jerome Powell emphasising a cautious approach to additional rate hikes. There, the rate currently stands at a target range of 5.25%-5.50%, following 500 basis points in hikes implemented from March 2022 to July 2023.
The decision to maintain the 5.25% Bank rate was in line with economists' consensus, as we outlined earlier this week. Since the “no change” vote on September 21, the Israel-Hamas war has ignited the Middle East. And the UK consumer price index data from the ONS showed that inflation is holding firm at 6.7%, compared to 3.7% in the US and 3.1% in the eurozone. US bond yields have broken through 5% as investors expect “higher for longer” interest rates in the world’s biggest economy.
The Bank has also released the quarterly monetary policy report (MPR) with forecasts for inflation and economic growth. In the report, the Bank says: "We expect inflation to fall further this year to around 4.5%, and continue to fall towards our 2% target next year."
Morningstar's Take
Commenting on the decision, Morningstar's Europe Market Strategist Michael Field says the decision was as expected: "Only a few economists predicting another hike, and absolutely nobody suggesting there might be a cut this time around.
"This will come as some small relief for markets, but any positivity coming from this announcement today has been lost in the euphoria on the news that the US Federal Reserve is likely finished with rate increases, which should buoy the global economy.
"That the BoE could also be finished with rate rises, and may even start cutting early next year, is something to be celebrated, both by businesses and cash-strapped mortgage holders. But at the same time, its easy to forget how quickly and strongly rates rose. At 5.25%, base rates stand at their highest level since before the financial crisis.
"The UK economy, like much of Europe, is on a knife edge. Barely growing, but still experiencing elevated levels of inflation. Labour markets are tight, but consumers’ pay packets have not kept up with inflation. From here we can only hope that inflation continues to fall at pace, making it easier for the BoE to start cutting rates."
