(Alliance News) - The Bank of England on Thursday decided against enacting another lift to UK interest rates in a split decision after a cooler than expected inflation reading on Wednesday took some pressure off Threadneedle Street.
The BoE maintained bank rate at 5.25%, a more than 15-year high, in what was somewhat of a surprise move. According to FXStreet cited consensus, a 25 basis point hike was expected, though a tamer UK inflation reading earlier this week meant some investors dialled back their rate hike bets.
It ends a streak of 14 successive hikes since December 2021, which have shot up the bank rate from a Covid-19-induced low of 0.10%. It is the BoE's first pause since November 2021.
It was a split outcome, with five Monetary Policy Committee members, Governor Andrew Bailey included, favouring the hold. Four would have preferred rates to remain unchanged, they were Jon Cunliffe, Megan Greene, Jonathan Haskel and Catherine Mann.
The Bank of England said: "Five members judged that maintaining bank rate at 5.25% was warranted at this meeting. There were signs that the labour market was loosening. The recent acceleration in the average weekly earnings was noteworthy but was not apparent in other measures of wages. Although it was important not to put too much weight on a single data point, headline and services CPI inflation had fallen back and were lower than had been expected.
"For one member, however, the risks of overtightening policy had continued to build, increasing the likelihood of output losses and volatility that would require sharper reversals of policy. Lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through."
Those that favoured a hike noted that "there was evidence of more persistent inflationary pressures".
Wednesday's UK consumer price index data changed the face of the meeting. Annually, consumer prices rose by 6.7% in August, easing from a 6.8% rise in July, the data showed. August's reading undershot market forecasts, as cited by FXStreet, which had predicted the inflation rate to heat up to 7.1%.
The annual core inflation rate - which excludes energy, food, alcohol, and tobacco - cooled to 6.2% in August, from July's reading of 6.9%. August's reading had been expected to come in at 6.8%.
In a bid to keep a lid on rampant inflation, the BoE has lifted rates by a total of 515 basis points so far in this hiking cycle.
Also on Thursday, the BoE voted unanimously to reduce the stock of UK government bond purchases held by GBP100 billion over the next 12 months, taking it to a total of GBP658 billion.
Sterling was quoted at USD1.2257 shortly after the decision, down versus USD1.2295 just beforehand.
By Eric Cunha, Alliance News news editor
Comments and questions to newsroom@alliancenews.com
Copyright 2023 Alliance News Ltd. All Rights Reserved.
