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 tougher challenge in curbing inflation than other advanced economies. The decision, taken by a majority of six to three on the Monetary Policy Committee, marks the third consecutive meeting without a change in borrowing costs.
Governor Andrew Bailey stressed that while inflation has fallen from over 10% in January to 4.6% in October, there is still progress to be made. “We have come a long way this year, but there is still some way to go,” he said, adding that the Bank would need to see inflation return to its 2% target before considering rate cuts. The stance contrasts with the US Federal Reserve, which signalled three rate cuts next year.
The MPC noted that the decision was “finely balanced” between the risks of not tightening enough and tightening too much. Three members—Jonathan Haskel, Catherine Mann, and Megan Greene—voted for a further increase to 5.5%. The majority opted to hold, citing that previous increases have yet to fully feed through to the economy.
The Bank highlighted that UK wage inflation and services price inflation remain considerably higher than in the US and the euro area. In a further sign of economic weakness, official data showed the UK economy unexpectedly shrank by 0.3% in October, and the Bank expects growth to remain broadly flat through the coming quarters.
Financial markets anticipate five rate cuts by the end of 2024, but the BoE’s hawkish tone pushed the pound higher, reaching $1.276. City economists, however, suggest the deteriorating economic outlook may force the Bank to loosen policy sooner than it currently signals. The European Central Bank also pushed back against rate cut expectations, leaving borrowing costs unchanged.
