Newsflash: The Bank of England has left UK interest rates unchanged, in a rare three-way split!
Bank Rate will remain at 5.25%, a 16-year high.
That will disappoint borrowers, such as mortgage holders, hoping to see a drop in borrowing costs today.
But it’s bang in line with City forecasts.
But, the decision is not unanimous … two members of the Bank’s Monetary Policy Committee preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. One member preferred to reduce Bank Rate by 0.25 percentage points, to 5%.
The Bank says:
Six members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Huw Pill and Dave Ramsden) voted in favour of the proposition.
Three members voted against the proposition. Two members (Jonathan Haskel and Catherine L Mann) preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. One member (Swati Dhingra) preferred to reduce Bank Rate by 0.25 percentage points, to 5%.
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Over at Threadneedle Street, the Bank of England is holding a press conference to explain today’s decision.
Andrew Bailey, the Bank’s governor, starts by saying that we’ve had good news.
Inflation has fallen a long way, Bailey says, from 10% a year ago to 4% in December.
Things are moving in the right direction.
But, Bailey says, the Bank has to be more confident that inflation will fall to its 2% target, and stay there,
We are not yet at a point where we can lower interest rates.
As such, the level of Bank Rate “remains appropriate” at 5.25%, he insists
(although three of the MPC didn’t agree with him!)
The Bank of England has also released its latest monetary policy report.
Here are the top lines:
Higher interest rates are working to reduce inflation
Inflation could fall to our 2% target within a few months, before rising slightly again
We will keep interest rates high for long enough, so inflation settles at 2%
Worryingly for the government, the Bank of England reckons there’s a roughly 50% chance that the UK fell into a technical recession at the end of last year.
That would mean two quarters of negative growth in a row – we already know the economy shrank by 0.1% in July-September, so all eyes will be on the Q4 GDP report in two week’s time….
There’s a clear change of tone in the minutes of this week’s Bank of England meeting, showing that the central bank is turning its attention towards cutting rates (but not today).
The Bank says the MPC is prepared to adjust monetary policy to return inflation to the 2% target sustainably, and will keep ‘under review’ how long to keep rates at 5.25%.
It will therefore 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.
On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level.
The minutes of the Bank of England’s meeting show that the two hawks, MPC members Jonathan Haskel and Catherine L Mann, pushed to raise interest rates to 5.5% to tackle the risks of “more deeply embedded inflation persistence”.
Mann and Haskel told colleagues that this would help to return inflation to target sustainably in the medium term.
But across the table, Swati Dhingra argued that the MPC should cut rates now – pointing out that monetary policy operates with a lag (so much of the previous increases since December 2021 haven’t fully fed through to the economy).
Waiting for lagging indicators of domestic relative price growth to fall sharply before reducing rates would come with a risk of overtightening, Dhingra pointed out – and after all, UK inflation was already on a firm downward trajectory.
The remaining six members were happy, though, to sit on their hands – concluding that the risks to inflation were more balanced.
The minutes say:
Although services price inflation and wage growth had fallen by somewhat more than had been expected, key indicators of inflation persistence remained elevated.
There were questions, on which further evidence would be required, about how entrenched this persistence would be, and therefore about how long the current level of Bank Rate would need to be maintained.
The Bank of England says inflation will hit its target of 2% in the second quarter of this year – down from 4% in December.
However, it’s not celebrating – as inflation is expected to increase again in the second half of this year.
CPI inflation is expected to be around 2.75% at the end of 2024, based on market expectation for interest rates.
The Bank blames “the persistence of domestic inflationary pressures”, adding:
CPI inflation is projected to be 2.3% in two years’ time and 1.9% in three years.
The Bank of England says that global GDP growth has remained subdued since its last meeting in December – although activity in the US is stronger.
Inflationary pressures are abating across the euro area and United States, the BoE says.
But it also points to the risks of geopolitical tensions pushing up costs, saying:
Wholesale energy prices have fallen significantly. Material risks remain from developments in the Middle East and from disruption to shipping through the Red Sea.
Following recent weakness, GDP growth is expected to pick up gradually during the forecast period, in large part reflecting a waning drag on the rate of growth from past increases in Bank Rate. Business surveys are consistent with an improving outlook for activity in the near term.
I think this is the first time that the Bank of England’s policymakers have been split between raising rates, leaving them on hold, and cutting them since the financial crisis in 2008.
Newsflash: The Bank of England has left UK interest rates unchanged, in a rare three-way split!
Bank Rate will remain at 5.25%, a 16-year high.
That will disappoint borrowers, such as mortgage holders, hoping to see a drop in borrowing costs today.
But it’s bang in line with City forecasts.
But, the decision is not unanimous … two members of the Bank’s Monetary Policy Committee preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. One member preferred to reduce Bank Rate by 0.25 percentage points, to 5%.
The Bank says:
Six members (Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Huw Pill and Dave Ramsden) voted in favour of the proposition.
Three members voted against the proposition. Two members (Jonathan Haskel and Catherine L Mann) preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. One member (Swati Dhingra) preferred to reduce Bank Rate by 0.25 percentage points, to 5%.
It will be a shock if the Bank of England doesn’t leave interest rates on hold today, to be honest.
Money market pricing suggests ‘no change’ is a 96.5% chance, with a tiny 3.5% possibility of a hike….
https://news.google.com/rss/articles/CBMilwFodHRwczovL3d3dy50aGVndWFyZGlhbi5jb20vYnVzaW5lc3MvbGl2ZS8yMDI0L2ZlYi8wMS9iYW5rLW9mLWVuZ2xhbmQtaW50ZXJlc3QtcmF0ZXMtYW5kcmV3LWJhaWxleS1zaGVsbC1wcm9maXRzLXVrLWVjb25vbXktbWFudWZhY3R1cmluZy1idXNpbmVzcy1saXZl0gGXAWh0dHBzOi8vYW1wLnRoZWd1YXJkaWFuLmNvbS9idXNpbmVzcy9saXZlLzIwMjQvZmViLzAxL2Jhbmstb2YtZW5nbGFuZC1pbnRlcmVzdC1yYXRlcy1hbmRyZXctYmFpbGV5LXNoZWxsLXByb2ZpdHMtdWstZWNvbm9teS1tYW51ZmFjdHVyaW5nLWJ1c2luZXNzLWxpdmU?oc=5
2024-02-01 07:33:00Z
CBMilwFodHRwczovL3d3dy50aGVndWFyZGlhbi5jb20vYnVzaW5lc3MvbGl2ZS8yMDI0L2ZlYi8wMS9iYW5rLW9mLWVuZ2xhbmQtaW50ZXJlc3QtcmF0ZXMtYW5kcmV3LWJhaWxleS1zaGVsbC1wcm9maXRzLXVrLWVjb25vbXktbWFudWZhY3R1cmluZy1idXNpbmVzcy1saXZl0gGXAWh0dHBzOi8vYW1wLnRoZWd1YXJkaWFuLmNvbS9idXNpbmVzcy9saXZlLzIwMjQvZmViLzAxL2Jhbmstb2YtZW5nbGFuZC1pbnRlcmVzdC1yYXRlcy1hbmRyZXctYmFpbGV5LXNoZWxsLXByb2ZpdHMtdWstZWNvbm9teS1tYW51ZmFjdHVyaW5nLWJ1c2luZXNzLWxpdmU
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