The 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.
This is now the third time in a row that the base rate has been frozen, with the latest hold decision widely predicted by industry analysts and experts who suggest it has reached its peak.
It also comes hot of the heels of the US Federal Reserve last night signalling the end of its tightening cycle.
But as to when the two-years of rate hikes will start to unwind is under fierce debate, with some suggesting earlier this week that it could be from mid-2024 while others indicated it could be at the tailend of next year as policy makers hold firm for longer.
Rob Clarry, investment strategist at UK wealth manager Evelyn Partners, offered this fresh perspective: “Money markets have moved to price in as many as four 25bps cuts from the MPC from early next summer – which would mean a bank rate as low as 4.25 per cent by the end of 2024.”
Either way, since the base rate was first raised from the historic 0.1 per cent low in December 2021, inflation peaked at 11.1 per cent before it has now softened to 4.6 per cent. This means for the first time in 15 years, the base rate is higher than inflation.
While inflation is down from the eye-watering double-digit figure, it’s still above the two per cent target and nonetheless, prices are still rising, just at a slower pace, with the cost-of-living crisis very much at the centre of billpayers thoughts and policymaker strategies.
Meanwhile, the latest GDP figures showed the UK economy contracted 0.3 per cent in the month to October while zero growth was recorded over the quarter. Elsewhere, wage growth is still at the upper end of the comfort zone at 7.3 per cent (excluding bonuses, 7.2 per cent including them) between August to October.
Minutes of the MPC meeting read: “In the most likely, or modal, November Report projection, conditioned on a market-implied path for bank rate that had remained around 5.25 per cent until Q3 2024 and then had declined gradually to 4.25 per cent by the end of 2026, CPI inflation had been expected to return to the two per cent target by the end of 2025 and to fall below the target thereafter. The Committee had continued to judge that the risks to its modal inflation projection were skewed to the upside, such that the mean projection for CPI inflation had been 2.2 per cent and 1.9 per cent at the two and three-year horizons.
“There remained upside risks to the outlook for wage growth, including from the possible effects of the recently announced increase in the National Living Wage. Relative to developments in the United States and the euro area, measures of wage inflation were considerably higher in the United Kingdom and services price inflation had fallen back by less so far.”
