BoE leaves UK rates unmoved as warns of higher for longer

(Alliance News) - The Bank of England maintained UK interest rates at a 15-year high on Thursday, in a slightly less split vote by policymakers, as Threadneedle Street predicts inflation to ebb "sharply" in the months to come.

There was also a slight caution that rates would need to remain at robust territory for longer.

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."

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.

It 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%.

The pound bought USD1.2214 shortly after the decision, up from USD1.2193 beforehand.

By Eric Cunha, Alliance News news editor

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