Five MPC members voted to hold rates
The Bank of England’s (BoE) Monetary Policy Committee (MPC) has voted to leave interest rates unchanged at 4%.
In a meeting today (6 November), five MPC members voted to hold rates while the remaining four opted for a 25bps cut to 3.75%.
The decision was hard to call ahead of the vote, noted AJ Bell investment director Russ Mould, who said several observers had expected a rate cut even as the market priced in no change.
The uncertainty around the decision came after UK inflation came in slightly better than expected in September, remaining at 3.8% for the third consecutive month.
Earlier this week, Deutsche Bank chief UK economist Sanjay Raja, also pointed to the fact that Q3 GDP growth came in at around half the pace the MPC had expected, while the jobless rate edged higher to 4.8% and private sector pay growth was tracking nearly 0.4% below the central bank’s projections.
Meanwhile, speculation around what could be announced in the Autumn Budget on 26 November has been rife. Reports have so far suggested Rachel Reeves is considering reforming cash ISAs and increasing taxes during a Budget in which the chancellor noted will require her to take “tough but necessary” choices.
Schroders senior economist George Brown argued: “Holding rates today was the right decision, with inflation still nearly double the 2% target. The Bank will be in a stronger position after the dust settles from the Budget, armed with additional jobs and inflation data, to judge whether further easing is warranted in December.”
Aberdeen Adviser head of technical engagement Andrew Zanelli said: “Today’s decision to hold interest rates was expected and shouldn’t cause any market reaction.
“Whilst the decision provides some continuity, consumers have been dealing with Autumn Budget speculation and predictions on an almost daily basis for some time now.
“They may need to reassess their financial plans as a result and this is when professional financial planners and advisers prove their worth.
Pre-Christmas cut?
Quilter investment strategist Lindsay James commented: “A month ago, a rate cut by year-end was seen as just around a 25% probability but is now given a more than evens chance. Inflation climbed through the summer, with food inflation exceeding 5%.
“This had been a concern for the committee as because it is a frequent consumer ‘touch point’, it can have more influence on consumer inflation expectations than other areas. Higher expectations typically mean higher wage demands and thus higher prices, in what is known as the dreaded ‘wage price spiral’.”
She added: “However, the latest inflation report was more encouraging, and the BoE believes inflation has peaked, potentially opening the door for a pre-Christmas rate cut. Food inflation fell back to 4.5%, below the expectations of the BoE.
“This has been driven both by supermarket discounting but also because core ingredients like diary goods, cocoa and sugar have seen prices falling back in recent months. Similarly wage growth in the private sector has been coming down amid a weaker labour market, with wages an important contributor to services inflation.
“This will be a blow to Rachel Reeves and the government in the lead up to the Budget. The economy continues to hold up with GDP growth in 2025 expected to land at around 1.5%, but 2026 is looking increasingly challenging.
“Government spending is expected to grow more slowly, while the jobs market continues to weaken. With a fresh set of tax hikes incoming, the Chancellor would have liked to have been in a position where rates were below 4%.
“Instead, she will have to hope for further falls in inflation to pave the way for additional cuts to the base rate. For now, it is up to her Budget to help stimulate the economy noticeably, but as her speech earlier this week suggested, the government will be acting in the opposite direction.
“By speaking to an adviser, consumers can not just understand what’s going on but also consider their choices within a longer- term strategy and make sure their money is working as hard as it possibly can.”
Michael Nelson Professional Adviser