For the third consecutive meeting, the Bank of England has opted to maintain the status quo by leaving interest rates unchanged. Emphasizing their resolve, the Bank remains steadfast in its determination to uphold borrowing costs at the current 5.25% level for the foreseeable future.
Unlike the Federal Reserve, which dropped heavy hints at its latest meeting yesterday that it is preparing for multiple cuts in US interest rates next year, its British counterpart indicated that that moment is not yet close in the UK.
“My view at the moment is, it’s really to early to start speculating about cutting interest rates, we have got to see more progress,” said the Bank of England governor, Andrew Bailey.
Further interest rate increases were also not ruled out by Mr Bailey, who added: “I don’t think that we can say definitively that interest rates have peaked. I hope that we are at the top of the cycle.”
Three members of the Bank’s Monetary Policy Committee (MPC) voted for an increase in borrowing costs, but they were outvoted by the remaining six members. The Bank also left the language in its minutes – often examined forensically as a sign of future policy – largely unchanged.
The statement includes a critical section stating that the MPC judged that monetary policy – the level of interest rates – “was likely to need to be restrictive for an extended period of time. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures”.
While essentially unchanged from previous meetings, the minutes jar with the debate happening in financial markets in London and elsewhere.
With infilation having dropped faster than expected and with signs of economic weakness now showing, investors are betting that central banks begin to cut their borrowing costs as soon as next spring.
As of Thursday morning, money markets were pricing in 1.25 percentage points of Bank of England interest cuts next year, with the first cut coming in May.
Despite all of this, the Bank remains nervous that were it to open the door to interest rate cuts any time soon, it would risk allowing inflation to surge back before it gets to its 2% target.
In a statement, Andrew Bailey, the Bank’s governor, addressed the decision: “Today, we’ve chosen to maintain the interest rates at 5.25%. Throughout this year, our consecutive rate hikes have been instrumental in curbing inflation from its peak of over 10% in January to 4.6% in October.
“Despite this progress, there’s further ground to cover. We remain committed to vigilant monitoring of the data, prepared to make necessary decisions to steer inflation back to our target of 2%.”