(Alliance News) - Bank of England Governor Andrew Bailey on Thursday pushed back on hope that it will soon cut rates, believing there is still some "distance to travel yet" in the fight against inflation.
Bailey said policymakers will continue closely scrutinising data to eye up whether additional hikes are needed.
Even if more hikes would not be necessary, it is "much too early to be thinking about rate cuts", Bailey said in a press conference after Threadneedle Street maintained UK interest rates at a 15-year high.
The BoE kept bank rate at 5.25%. It is the second-successive hold, following one in September, which ended a streak of 14 successive hikes since December 2021. The BoE had rapidly shot up the 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 since its September decision, it has seen "little news in key indicators of UK inflation persistence".
"There have continued to be signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally. Given the significant increase in bank rate since the start of this tightening cycle, the current monetary policy stance is restrictive," 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."
Bailey, flanked by Deputy Governor for Monetary Policy Ben Broadbent and Deputy Governor Dave Ramsden, who overseas markets and banking, did not get drawn into the idea that the BoE was trying to send a message to markets.
Bailey was pressed on the addition of a sentence in the policy decision document stating "that monetary policy is likely to need to be restrictive for an extended period of time".
In response, Bailey said the BoE was not looking to "move the curve around".
Some analysts and economists expect the first rate cut to come next summer.
The BoE also set it out its latest monetary policy report containing its outlook for the UK economy.
It lowered its near-term inflation expectations, with its "most likely" path predicting a fourth-quarter rate of 4.6%, trimmed from its 4.9% August prediction.
Its outlook for the fourth-quarter of next year was lifted to 3.1% however, from 2.5%. A return to below the 2% inflation target will be delivered in the fourth-quarter of 2025, though its inflation projection for that period was lifted to 1.9% from 1.6%.
"In the Monetary Policy Committee's latest most likely, or modal, projection conditioned on the market-implied path for bank rate, CPI inflation returns to the 2% target by the end of 2025. It then falls below the target thereafter, as an increasing degree of economic slack reduces domestic inflationary pressures," the BoE said.
More recently, numbers last month showed UK inflation proved unexpectedly stubborn in September.
The Office for National Statistics said consumer prices rose 6.7% annually in September, matching the rate seen in August. Market forecasts, as cited by FXStreet, had expected the figure to cool to 6.5% last month.
The September figure was below the BoE's expectations, however.
Key to the consumer price index and interest rate outlook is services inflation, the Bailey said.
"Services inflation has been only slightly weaker than expected in August and remains elevated," the BoE said in its MPR.
"Services inflation stood at 6.9% in September, 0.1 percentage points below the August forecast. There was some volatility in services inflation over the summer due to travel-related components such as airfares and accommodation. Excluding these components, services inflation has been more stable since April."
Bailey said it is "important that services inflation falls steadily" over the next year.
Food and energy inflation have both ebbed, though events in the Middle East could provide upward pressure to the latter.
Wage growth remains robust, Bailey said, and higher than what would be consistent with inflation target.
The BoE also lowered gross domestic product growth expectations to 0.6% for the fourth quarter, from its prior 0.9% outlook. It expects GDP to flatline a year later, having previously forecast a 0.1% rise. For the fourth quarter of 2025, growth of 0.4% is predicted, trimmed from 0.5%.
When pressed on whether the tepid outlook for the UK economy, and the lingering possibility of a recession, could markedly change the rates outlook, Broadbent said the focus is on inflation.
Broadbent said marginal growth in the economy or a marginal decline, which could ultimately be the difference between a recession given the term is considered to mean two successive quarters of economic contraction, is not the focus. Zero is not a magic number, Broadbent said.
The pound bought USD1.2223 as the press conference wrapped up, up from USD1.2193 before the BoE decision.
By Eric Cunha, Alliance News news editor
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