Bank of England leaves interest rates on hold

The Bank of England left interest rates on hold at 5.25% on Thursday, as widely expected.

The rate-setting Monetary Policy Committee voted by a majority of six to three to leave rates on hold, including governor Andrew Bailey and chief economist Huw Pill.

Three members – Megan Greene, Jonathan Haskel and Catherine Mann – voted for a 25 basis point increase, on concerns that “persistent inflationary pressures” remained.

The MPC has upped interest rates 14 times since December 2021, to a 15-year high, as it looks to tackle surging inflation.

The consumer prices index now stands at 4.6%, off last year’s high of 11.1% but well above its long-term target of 2%.

This is the third time in a row the MPC has left rates on hold.

In commentary released alongside the decision, the BoE noted: “Since the MPC’s previous decisions, CPI inflation has fallen back broadly as expected, while there has been some downside news in private sector regular average weekly earnings growth.

“However, key indicators of UK inflation persistence remain elevated. As anticipated, tighter monetary policy is leading to a loser labour market and is weighing on activity in the real economy more generally.”

Anna Leach, deputy chief economist at the Confederation of British Industry, said the decision was in line with the body’s own forecasts.

She continued: “A year of better-than-expected – albeit lacklustre – growth, sticky domestic inflation, high wage growth and uncertainty over energy prices have all played their part in necessitating higher-for-longer rates.

“2024 is set to be another year of weak growth for the UK, as the pressure of higher interest rates continues to erode household spending power and add to business cost pressures.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The MPC has downplayed the recent downside surprises from CPI inflation and wage growth, and has reiterated its view that monetary policy is likely to need to be restrictive for an extended period of time.

“We continue to think that the MPC will remain reluctant to signal that interest rates can fall soon until it is confident that businesses will not hike wages substantially in the first half of next year…and until it is sure the chancellor has not softened the fiscal consolidation in the budget ahead of the next general election.”

Pantheon Macroeconomics is forecasting the first cut in May 2024.

TD Securities said: “The decision was essentially a repeat of November’s, with a 6-3 vote and guidance unchanged.

“Unlike the Federal Reserve and European Central Bank, the BoE has yet to pivot to a more balanced policy bias. That is likely to happen in th e next couple of months, as evidence accumulates that inflation and its drivers are finally starting to slow.

“We expect the first rate cut in May 2024, with a cumulative 150 basis points of cuts in 2024.”