The Bank of England has kept interest rates on hold at 5.25%, the highest level since the 2008 financial crisis, as it warned that Britain faces a more difficult battle against inflation than other advanced economies. The Monetary Policy Committee (MPC) voted 6-3 to maintain rates for the third consecutive meeting, with three members favouring a rise to 5.5%.
In its minutes, the Bank said the decision was "finely balanced" between the risk of not tightening enough if inflation proves persistent, and tightening too much given the lagged impact of previous increases. It noted that UK wage inflation and services price inflation remain considerably higher than in the US and euro area, setting Britain apart from its peers.
Governor Andrew Bailey acknowledged progress, with inflation falling from over 10% in January to 4.6% in October, but stressed: "There is still some way to go. We'll continue to watch the data closely and take the decisions necessary to get inflation all the way back to 2%." The Bank reiterated that rates need to stay high for "sufficiently long" to achieve the target.
The decision contrasts with the US Federal Reserve, which signalled three rate cuts next year. The European Central Bank also pushed back against cut expectations, leaving rates unchanged. The pound rose to $1.276, its highest since August, reflecting market expectations of higher-for-longer UK rates.
However, with the economy shrinking 0.3% in October and growth expected to remain flat, City economists predict the Bank will be forced to cut rates next year. Financial markets price in five cuts by end-2024 to 4%, while the EY Item Club forecasts four reductions.
