Seven MPC members voted to leave interest rates untouched
The Bank of England’s (BoE) Monetary Policy Committee (MPC) has voted to leave its base rate unchanged at 4%, a move widely anticipated by analysts and markets.
In a meeting today, seven MPC members voted to leave interest rates at 4%, having decided to cut rates by 25bps at the last meeting in August, while the remaining two – Swati Dhingra and Alan Taylor – opted for another 25bps cut.
The UK central bank has already made three 25bps reductions to the bank rate so far this year, one in February, one in May, and the most recent in August.
However, figures from the Office for National Statistics on Wednesday (17 September) revealed that sticky inflation has remained elevated at 3.8%, well above the BoE’s 2% target, dampening any hopes of a further rate cut this month.
AJ Bell investment director Russ Mould said: “Sticky inflation at elevated levels is a problem, meaning the bank might feel it is prudent to continue that fight via keeping rates at relatively high levels, rather than loosening monetary policy like the Fed.”
Quilter investment strategist Lindsay James said: “The BoE, as was expected, has voted to hold interest rates at 4%. As we approach the Budget in November and economic growth grinds to a halt, this a far from ideal scenario for the government as it contends with persistently high inflation.
“In fact, markets are not fully pricing the next rate cut in until the end of April next year.
“Given yesterday’s inflation figure and expectations that it will climb to 4% later this year, the BoE was left with little choice but to hold rates. Inflation is sticky, with services inflation particularly persistent, driven by a broad range of factors – however persistently high wage inflation is one area of commonality.
“The MPC at the BoE has previously said it expects inflation to peak in September before falling back towards target, but the risk remains that progress will continue to be slow given the impact that the recent rise in inflation may have on wage and price setting decisions for the months ahead.”
Wesleyan head of intermediaries distribution Nick Henshaw commented: “While today’s decision to hold rates at 4.0% was widely expected, the continued elevated rates driven by stubborn inflation will leave many savers adjusting their expectations on returns.
“For some, today’s decision may create a sense of stability that encourages greater investment risk, others will remain cautious in light of recent volatility across gilt and equities.
Linus Uhlig ProfessionalAdviser