Bank of England holds interest rates – but a future cut is on the cards
At its meeting ending on 5 November, the Bank of England’s Monetary Policy Committee voted by a majority of 5–4 to maintain the Bank Rate at 4%.
Notably, four members voted to reduce the Bank Rate by 0.25 percentage points, to 3.75%.
CPI inflation is judged to have peaked. Progress on underlying disinflation continues, supported by the still restrictive stance of monetary policy. This is reflected in an easing of pay growth and service price inflation. Underlying disinflation is being underpinned by subdued economic growth and building slack in the labour market, the Central Bank said.
Governor Andrew Bailey opted to keep the rates unchanged, citing ongoing concerns about the economy.
“Upside risks to inflation have become less pressing since August, and I see further policy easing to come if disinflation becomes more clearly established in the period ahead. Recent evidence points to building slack in the economy, and the latest CPI data were promising. But this is just one month of data,” he said.
“Labour costs remain elevated and wage growth, while on a downward path of late, may plateau. In assessing the outlook, I find the mechanisms underlying upside risks less convincing than those underlying the downside.”
Bailey noted that previous negative labour supply shocks could be less important for the trajectory of inflation today. Firms’ margin rebuilding may be mitigated by weak demand, and elevated household inflation expectations may have more limited impact. The downside scenario seems more likely, he said.
“It could help explain the elevated saving rate, and Agents’ intelligence on uncertainty. Rather than cutting Bank Rate now, I would prefer to wait and see if the durability in disinflation is confirmed in upcoming economic developments this year. “Current market pricing is close to the path suggested by a forward-looking Taylor rule (A which is a fair description of my position at present.”
