The decision to hold the base rate at 5% was widely predicted, with the bank’s MPC voting by a majority of 8-1. One member preferred to reduce the base rate from 5% to 4.75%.
Minutes of the meeting stated that the committee’s decisions have been guided by “the need to squeeze persistent inflationary pressures out of the system” so as to return CPI inflation to the 2% target both in a timely manner and on a lasting basis.
It comes off the back of the Consumer Prices Index (CPI) measure of inflation rising to 2.2% in the 12 months to August.
While below the bank’s 2.4% forecast, it was unchanged from July’s data.
The MPC noted that the unwinding of the global shocks that drove up inflation and the resulting fall in headline inflation “should continue to feed through to weaker pay and price-setting dynamics”.
However, inflation is expected to increase to around 2.5% towards the end of this year as declines in energy prices last year fall out of the annual comparison, the MPC added.
Earlier this month, GDP figures revealed the UK economy flatlined in July after showing no growth in June.
Here, the MPC said that headline GDP growth is expected to return to its underlying pace of around 0.3% per quarter in the second half of the year.
Taken in context, the MPC stated that the bank rate expectations implied by market pricing had continued to suggest that the next 25 basis point cut would occur in November.
Minutes of the meeting read: “Since the MPC’s previous meeting, global activity growth had continued at a steady pace, although some data outturns suggested greater uncertainty around the near-term outlook. Oil prices had fallen back, reflecting in large part weaker demand.
“Eight members preferred to maintain [the] bank rate at 5% at this meeting. Wage- and price-setting had continued to normalise and UK activity growth had been broadly in line with expectations. There was a range of views among these members on the degree to which the unwinding of past global shocks, the normalisation in inflation expectations and the current restrictive policy stance would lead underlying domestic inflationary pressures to continue to unwind, or whether these pressures could prove more entrenched, possibly as a result of more structural factors or greater momentum in demand.
“Despite these differences of view, the current policy stance was judged to be appropriate. For most members, in the absence of material developments, a gradual approach to removing policy restraint would be warranted.”
Stability for Brits
Andy Mielczarek, CEO of Chetwood Financial, said: “The Bank of England’s decision comes as no surprise and reinforces the sentiment that a period of economic stability is best for Britons.
“Whilst existing mortgage holders would have liked to have seen a further reduction, they can remain optimistic that the borrowing environment will be less temperamental and that they can make confident longer-term financial decisions. New customers can be hopeful that this period of stability continues, and that a more beneficial mortgage outlook can make their investment decisions more attractive.”
Mielczarek added: “For the time being, savers will be happy the rate has remained the same but could be forgiven for thinking it may be the last chance to maximise returns, especially on fixed rate savings products. They must remain diligent in searching the market for the best returns before a potential further reduction to the base rate.”
Ben Nichols, managing director at RAW Capital Partners, said: “Yesterday’s inflation print all but confirmed today’s decision, though the markets had been expecting it for some time.
“With core and services inflation both applying pressure in August’s CPI, policymakers clearly want to see a sustained downward trend in the underlying figures before opening the door to a more aggressive rate-cutting cycle.”
Nichols added that while today’s hold decision “may seem like something of a setback”, particularly for property buyers and borrowers, “it should have a consolidating effect that will provide greater market and economic stability in the medium to long term”.
He said: “We can probably expect at least one further rate cut before year end, which should provide a boost to investor sentiment. In light of this, we expect numerous opportunities to arise in the coming weeks and months, especially for investors who diversify their portfolios to meet the ever-changing nature of the markets.”