Bank of England keeps rates unchanged for first time in almost 2 years

The central bank held its key rate at 5.25 per cent, ending a series of 14 successive hikes since December 2021, when rates were just 0.1 per cent. Five members of the Monetary Policy Committee voted to leave rates unchanged and four wanted to raise them to 5.5 per cent. Governor Andrew Bailey, who had the casting vote, chose to hold.

Investors and a growing number of economists are betting that U.K. rates may already have peaked. The pound fell to the weakest since March against the dollar as traders trimmed bets on further interest-rate hikes. Markets were split before the decision, betting on a roughly 50 per cent chance of a vote to hold, after data showed inflation unexpectedly fell in August.

Repeating its former guidance, the committee said rates would be “sufficiently restrictive for sufficiently long” and “further tightening in monetary policy would be required if there were evidence of more persistent pressures.” Like other major central banks, the implication is that rates would remain high for longer.

“Many small firms have suffered financially, with margins and cash reserves battered by both the phenomenon the Bank tried to control, inflation, and the ‘cure’ it applied, leading to higher borrowing costs and dampened consumer demand,” said Martin McTague, chair of the Federation of Small Businesses.

The BOE cut its GDP growth forecast for the third quarter to 0.1 per cent from 0.4 per cent, the minutes showed. Underlying growth in the second half of 2023 is also likely to be weaker than the 0.25 per cent expected in August. Higher rates have been punishing homeowners, who face a 15 billion pound repayment crunch, according to the Resolution Foundation, much of which has yet to come through. Several MPC members have been warning that policy lags mean the BOE was already at risk of overtightening.

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