The Bank’s Monetary Policy Committee (MPC) voted by a 6-3 majority to maintain the base rate at 5.25 per cent. Three members preferred to increase it by 0.25 percentage points to 5.5 per cent.
The move was widely predicted, with experts now suggesting they may have peaked.
It follows on from inflation in the year to September recording a ‘sticky’ 6.7 per cent, while the UK economy is estimated to have grown by 0.2 per cent in August, resisting a technical recession once more.
Elsewhere, policymakers have had to contend with higher wage growth of 7.8 per cent in the three months to August, meaning it now exceeds the rate of inflation.
The MPC noted that the market-implied path for the bank rate remains at 5.25 per cent until Q3 2024 then declines gradually to 4.25 per cent by the end of 2026, “a lower profile than underpinned the August projections”.
UK GDP is expected to have been flat in Q3 2023, weaker than projected in August, while the events in the Middle East have led the oil futures curve to rise, gas futures prices are little changed.
Elsewhere, the loosening labour market and the high pay growth figures are also being monitored closely. The committee noted: “There remains uncertainty about the near-term path of pay, but wage growth is nonetheless projected to decline in coming quarters from these elevated levels.”
Inflation is lower than earlier predictions, but remains well above the two per cent target. However, it is expected to continue to fall sharply, to 4.75 per cent in Q4 2023, 4.5 per cent in Q1 2024 and 3.75 per cent in Q2 2024.
“This decline is expected to be accounted for by lower energy, core goods and food price inflation and, beyond January, by some fall in services inflation,” the MPC wrote.
It added that inflation is expected to hit its two per cent target by the end of 2025, falling to 1.6 per cent in three years’ time.
Industry reaction to follow…
