Bank of England maintains interest rates amid slowing inflation

Bank of England
  • Rates held flat at 5.25%, ending a fourteen-meeting run of rate rises.
  • MPC voted 5 to 4 in favour of holding rates steady, with four members preferring a 0.25% rise to 5.5%.
  • Inflation is expected to return to the Bank’s 2% target by 2025.
  • Bank also voted to reduce the amount of government bonds held under quantitative easing by more than 10% over the next 12 months.
  • The market was evenly split on a hold or a rate rise before the announcement.

Nicholas Hyett, Investment Manager at Wealth Club, commented;

“After fourteen rate rises on the bounce, and lower than expected inflation, the market had begun to think the run of rate hikes was all over – well it is now.

The committee was split pretty much down the middle, with five in favour of a hold and four favouring a rise. The vote to trim QE by some 13% will tighten monetary policy a touch, and that may have given some swing voters the space to hold rather than hike.

From here there’s a strong argument for the Bank taking a prolonged pause. Fixed rate mortgages and a higher proportion of mortgage free owner occupiers mean higher rates don’t feed through to the economy as quickly as they once did, and the full impact of past interest rate hikes hasn’t been felt yet.

Expect the Bank to spend some time sitting back behind the ball and watching what unfolds.”

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