BoE leaves rates on hold again amid fight against inflation

(Alliance News) - The Bank of England maintained UK interest rates at a 15-year high on Thursday, but the decision remained split between policymakers.

The BoE kept its bank rate at 5.25%. It is the third successive hold, following one in September, which ended a streak of 14 consecutive hikes since December 2021, and one in November. The BoE had rapidly increased bank rate from a Covid-19-induced low of 0.10%.

It was a split outcome, with six Monetary Policy Committee members, Governor Andrew Bailey included, favouring the hold. Three would have preferred rates to have been lifted by 25 basis points, they were Megan Greene, Jonathan Haskel and Catherine Mann.

The BoE said that since November's meet, the "advanced-economy government bond yields have fallen materially, including at shorter horizons, and risky asset prices have risen."

"Global GDP growth has been a little stronger than projected in the November Report. Consumer price inflation in the euro area and the United States has declined more quickly than expected. There remain upside risks to inflation given events in the Middle East, although oil and wholesale gas futures prices have fallen," the central bank said.

"The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee's remit."

More recently, numbers last month showed UK inflation cooled dramatically in October.

The ONS said consumer prices rose 4.6% annually in October, dropping sharply from the 6.7% pace in September. The reading was lower market consensus of 4.8%, as cited by FXStreet, which was also the forecast from the Bank of England.

The annual rate was the lowest since October 2021, and means UK Prime Minister Rishi Sunak has fulfilled his pledge to halve inflation to below 5.4% by the end of this year.

Moreover, on Wednesday, data showed that the UK economy shrank by more than expected in October, according to figures from the Office for National Statistics.

Gross domestic product fell by 0.3% in October from September, having risen by 0.2% in September from August. This was worse than expected. According to FXStreet market consensus, analysts were expecting GDP to fall by just 0.1% in October.

The pound bought USD1.2706 shortly after the decision, up from USD1.2667 beforehand.

The BoE is not the only central bank grabbing market attention this week.

The bank's decision followed the US Federal Reserve leaving interest rates unchanged on Wednesday.

The decision from the Federal Open Market Committee extended a pause in monetary policy that has been in place since July, leaving the federal funds rate at a 22-year high of 5.25% to 5.5%.

But, it was the economic projections that accompanied the US central bank's statement that grabbed market attention. Notably, projections showed that most Federal Reserve officials forecast that the US central bank could cut rates by around 75 basis points next year.

Still to come on Thursday, the European Central Bank will announce its own interest rate decision at 1315 GMT. A press conference with President Christine Lagarde follows the ECB decision at 1345 GMT.

By Sophie Rose, Alliance News senior reporter

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