Bank of England leaves rates unchanged for first time since November 2021

(Sharecast News) - The Bank of England has left interest rates unchanged for the first time in 15 months, the central bank announced on Thursday, though the decision was finely balanced. The Monetary Policy Committee decided to maintain the Bank Rate at 5.25% following 14 consecutive meetings to tighten monetary policy since November 2021.

Five of the nine members of the committee voted in favour of keeping rates unchanged.

Prior to this week, economists were mostly certain that the MPC would hike rates by 25 basis points, but a surprise drop in inflation announced on Wednesday clouded the outlook somewhat.

The consumer price index for August show that the annual rate of inflation unexpectedly slowed to 6.7%, down from 6.8% in July and much lower than the tick-up to 7% expected. Meanwhile, core inflation dropped to 6.2% from 6.9%, well below the 6.8% forecast.

Before the MPC announcement, markets had been pricing in an 20% chance of a pause in the hiking cycle, but the slowdown in inflation shifted the balance of probabilities to a 50-50 split.

The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100 billion over the next 12 months, to a total of £658 billion.

Gordon Milnes at Investec Real Estate called Thursday's move the "absolutely the right decision in the face of recent economic data".

"Hopefully the Bank of England can hold their nerve and this is the peak, which will be a welcome boon for investors, developers and lenders. Now we need some further visibility on potential interest rate cuts, which should act as a catalyst for a rapid bounceback in real estate activity levels," he said.

In a statement, the MPC said it would "continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation".

"Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee's remit. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures."