By Paul Hannon
The Bank of England's policy makers left their key interest rate unchanged for the second straight meeting, but said they don't expect to ease policy soon.
The decision on Thursday to hold the benchmark rate at 5.25% was backed by six members of the Monetary Policy Committee, while three voted for a rise in the key rate to 5.5%. At their last meeting in September, four members voted for a higher rate. Prior to that decision to hold, the BOE had raised its key rate in 14 straight meetings.
The BOE followed both the Federal Reserve and the European Central Bank in leaving its key rate unchanged. That means all three decided against an increase in borrowing costs for the first time since December 2021, when the BOE became the first to start raising its key rate.
With inflation rates falling and economic growth weak, investors have begun to speculate on when European central banks might cut their key rates to boost flagging activity.
The BOE said that won't be in the coming months, indicating that it doesn't anticipate a cut much before the third quarter of next year as rates need to stay restrictive "for an extended period of time." It also warned that it may have to raise its key rate again if inflation is higher than it expects.
"Higher interest rates are working and inflation is falling," BOE Governor Andrew Bailey said. "But we need to see inflation continuing to fall. It's much too early to be thinking about rate cuts."
U.K. consumer prices rose by 6.7% in the 12 months through September, an inflation rate that was well above those of the eurozone and the U.S.
The BOE said it expects inflation to have fallen sharply in October and over coming months, and decline below its 2% target by the end of 2025.
That forecast was based on market expectations that the BOE will start to cut its key rate in the third quarter of next year. The BOE's inflation forecast suggests it isn't pushing back against that expectation in favor of a much earlier timing for its first cut.
The BOE expects the U.K. economy to stagnate in 2024, a weaker outlook than previously forecast and its expectations for both the eurozone and the U.S. In 2025, it expects the economy to grow by just 0.25%, an unchanged forecast. It also sees a steady rise in the unemployment rate to 5% in 2025 from 4.25% this year.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
11-02-23 0831ET
