Bank Of England Holds Rate Steady At 4% In Tight Vote

(RTTNews) - The Bank of England decided to hold the interest rate in a tight vote on Thursday and signaled that the rate will follow a gradual downward path if disinflation process continues.

The Monetary Policy Committee, led by Governor Andrew Bailey, voted 5-4 to retain the bank rate at 4.00 percent.

The central bank had reduced the rate five times since August 2024, which is now at its lowest since early 2023.

In a finely balanced decision, Bailey said the overall risks to medium-term inflation had moved down to become more balanced recently and there was value in waiting for further evidence.

A majority of policymakers placed greater weight on risks of persistence in inflation, requiring more prolonged monetary policy restriction, the BoE said. Meanwhile, four MPC members voted to cut the rate by 25 basis points to 3.75 percent.

The extent of further reductions will depend on the evolution of the outlook for inflation, the bank said.

"If progress on disinflation continues, Bank Rate is likely to continue on a gradual downward path," the BoE added.

"We need to be sure that inflation is on track to return to our 2 percent target before we cut them again," Bailey said.

Policymakers noted that inflation at 3.8 percent in September is likely to be the peak. Inflation is forecast to fall to close to 3 percent early next year before gradually returning towards the 2 percent target over the subsequent year.

The economy is forecast to grow only 0.2 percent in the third quarter due to weaker growth in exports to the U.S. and disruption linked to the Jaguar Land Rover cyberattack. Headline GDP growth is expected to pick up to 0.3 percent in the fourth quarter. ING economist James Smith said that a rate cut is coming in December. Everything hinges on Governor Bailey's vote - and his comments make it abundantly clear that he is siding with the doves, the economist added.

The Confederation of British Industry Deputy Chief Economist Alpesh Paleja said the case for further cuts is strengthening. As economic momentum remains sluggish and the MPC more reassured about the risks from greater inflation persistence, a couple more rate cuts in the coming months look likely, Paleja observed.