Bank of England has decided to maintain its main interest rate at 5.25%. The central bank’s Monetary Policy Committee, in a 6-3 vote, opted to keep rates unchanged for the third consecutive meeting. However, three members showed dissenting opinions, arguing for a 25 basis point hike to 5.5%.
While headline inflation in the UK dropped to 4.6% annually in October, the lowest level in two years, wage growth still remains high and above expectations. This poses a challenge for the central bank, as it seeks to bring down inflation towards its target of 2% on a sustained basis.
The Monetary Policy Committee pointed out that key indicators of UK inflation persistence remain elevated, despite the impact of tighter monetary policy leading to a loosening labor market and affecting activity in the real economy. In the third quarter, real UK GDP remained flat in line with the committee’s projections. However, there was an unexpected contraction of 0.3% month-on-month in October.
After a string of 14 consecutive rate hikes, the Bank of England paused its tightening cycle in September, having raised its benchmark rate from 0.1% to a 15-year high of 5.25% between December 2021 and August 2023.
In related news, the US Federal Reserve announced that policymakers expect at least three interest rate cuts in 2024. This unexpectedly dovish stance provided a boost to global stock markets, resulting in a surge in stock prices.
Source (CNBC)
