The Bank of England opted for stability, keeping UK interest rates at a 15-year high of 5.25% on Thursday. In a decision that reflected a cautiously optimistic tone, policymakers expressed the belief that inflation might ease in the coming months.
The central bank’s move to maintain the current rate marked the second consecutive hold after a series of 14 successive hikes since December 2021, ending in a rate of 0.10% during the peak of the COVID-19 pandemic. The decision was not without contention, as three Monetary Policy Committee members, Megan Greene, Jonathan Haskel, and Catherine Mann, preferred a 25 basis points increase.
Despite the hold, the Bank of England acknowledged the impact of previous tightening cycles on the labour market and the real economy. The committee emphasised the need for the current monetary policy stance to remain restrictive for a considerable duration, ensuring a sustainable return to the 2% inflation target in the medium term. The bank’s latest monetary policy report outlined a revised outlook for the UK economy, indicating a near-term inflation rate of 4.6% for the fourth quarter of this year. However, expectations for the same period in 2024 were revised upward to 3.1%.
Recent data from the Office for National Statistics revealed that UK inflation remained stubbornly high, standing at 6.7% in September, consistent with the previous month’s rate. This figure, although above market expectations, was slightly below the Bank of England’s projections. Consequently, the bank adjusted its gross domestic product growth forecasts, anticipating a 0.6% growth in the fourth quarter of 2023, down from the earlier estimate of 0.9%. Additionally, the bank expected GDP to remain stagnant a year later, contrary to the previous prediction of a 0.1% rise. Looking ahead to the fourth quarter of 2025, a growth rate of 0.4% is anticipated, reflecting a cautious approach in light of ongoing economic uncertainties.
