After almost two years of rising rates, the Bank of England held its interest rate at 5.25 percent.
Investors reduced their expectations of further rate increases after Thursday’s decision. After the decision, mortgage rates will also likely fall after several lenders cut their rates this week.
The Monetary Policy Committee of the Bank split 5-4 in favor of keeping rates the same, with Governor Andrew Bailey, BoE , casting the final, decisive vote.
This was the first pause in the 14 rate increases that had been made since the tightening cycle began in December 2021.
The US Federal Reserve voted on Wednesday to maintain its benchmark rate after its own series increases had brought borrowing costs to the highest level since financial crisis.
While the price increases have slowed after the worst shock to inflation in over 40 years, world-leading central banks are not declaring victory but they are signaling that rates are near or at their highest.
The MPC did not make any comments about future actions. However, the majority of those who voted to keep the rate at the current level indicated that it was unlikely that additional rate increases would be needed in the months to come.
The five MPC members wrote that it was important to “maintain” the current rate level — not increase it — until the BoE’s target of 2 percent inflation had been reached.
Yael selfin, KPMG’s chief economist, stated that interest rates “potentially had reached their peak for this cycle” and that BoE officials will be closely monitoring data to ensure that the policy is restrictive enough to reduce inflation.
Since the summer, mortgage prices have been falling. Lenders such as NatWest, TSB, and Nationwide made cuts this week.
The swaps market still gives a roughly 70% chance that the BoE benchmark rate will rise by a quarter point to 5.5% before March of next year.
The pound, which was already weakening after the inflation data on Wednesday, continued to lose ground, trading down by 0.4 percent after reaching a six-month high of $1.2239 per dollar.
After the MPC’s vote, real estate stocks briefly rose. Barratt Developments (Berkeley Group) and other companies gained about 2 percent before reversing most of their gains.
The MPC’s decision was good news for Prime Minister Rishi sunak, who wanted to control the political agenda and delay key net-zero targets.
Sunak is on track to achieve his goal of “halving the inflation” by this year, following Wednesday’s unexpected drop in inflation to 6.7%.
Bailey predicted that inflation would continue to decline, but warned against complacency. BoE officials didn’t completely rule out a rate increase in the coming months. The MPC stated that “further tightening of monetary policy will be necessary if there is evidence of persistent inflationary pressures”.
Minority members who supported higher rates said that such pressures were evident, and that increased borrowing costs would “address risks of deeper embedded inflation persistance”.
The committee unanimously decided to increase the pace of quantitative tightening for the next year from PS80bn to PS100bn.
The MPC stated that it considered interest rates as the active tool of monetary policies, and added that the effect of their asset sales on borrowing cost was “modest”.