The Bank of England left interest rates unchanged in a surprise move that mimicked the Federal Reserve’s pause on Wednesday.
The decision follows 14 consecutive hikes in the BOE’s most aggressive campaign of monetary policy tightening since the 1980s. While economists predicted another quarter-point increase, the key interest rate is already at 5.25%, the highest since 2008.
It was a close call, decided with a 5-4 vote among members of the Monetary Policy Committee. The pound fell 0.6% against the dollar to $1.2273.
“The decision on whether to increase or to maintain bank rate at this meeting had become more finely balanced between the risks of not tightening policy enough when underlying inflationary pressures could still prove persistent, and not placing sufficient weight on the impact of the previous tightening that was still to come through on activity and inflation,” the MPC said in a statement.
There was some speculation that the BOE might not raise rates this week. Britain is predicted to see some of the weakest growth among advanced economies next year, according to new forecasts from the Organization for Economic Cooperation and Development released Tuesday.
Earlier this week U.K. inflation came in lower than expected for August, at 6.7%. That prompted economists at
Nomura
and
Goldman Sachs
to change their predictions for the BOE decision from a hike to no change. Investors saw a 50:50 chance of a hold.
Falling inflation figures gave policy makers scope to take a break, even though inflation is still running at more than three times the 2% target. The BOE’s tightening started in December 2021, months before the Fed.
The U.K. had been considered an economic laggard since the Covid-19 pandemic, but earlier this month its statistics office revised two years’ worth of data. It showed the country has long recovered the output lost during the pandemic and has been in the middle of the pack among Group of Seven countries for growth.
In forecasts updated last month, the BOE predicted inflation won’t return to target until the second quarter of 2025 and the economy will more or less be stagnant for the next two years. The forecasts will be updated again in November. BOE Governor Andrew Bailey isn’t scheduled to hold a press conference at Thursday’s meeting.
Last week, the European Central Bank also raised interest rates. The
Swiss National Bank
kept interest rates unchanged Thursday, while Sweden’s central bank raised rates by a quarter point.
Write to Brian Swint at [email protected]
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