The Bank of England left its benchmark rate unchanged at a 15-year high for the third straight time and retained its hawkish bias in contrast to the stance of its peer U.S. Federal Reserve that hinted at three rate cuts next year.
The Monetary Policy Committee, led by Governor Andrew Bailey, voted 6-3 to maintain the bank rate at 5.25 percent at the final meeting of the year.
The voting pattern was similar to the one seen in November. Megan Greene, Jonathan Haskel and Catherine Mann again sought a quarter point hike.
These members assessed that further tightening was necessary to address the risks of more deeply embedded inflation persistence and to return inflation to target sustainably in the medium term.
Policymakers continued to judge that monetary policy was likely to need to be restrictive for an extended period of time.
With an intention to bring down stubbornly high inflation, the interest rate was raised by a cumulative 515 basis points since December 2021. The current 5.25 percent is the highest since early 2008.
The lingering inflationary pressures will mean the interest rates stay at their peak of 5.25 percent for longer than the Fed, the European Central Bank and current UK market pricing, Capital Economics' economist Ruth Gregory said.
Nonetheless, when rates are cut they will be reduced further, to 3.00 percent by the end of 2025, rather than to 3.50 percent as investors anticipate, the economist added.
ING economist James Smith said the current forecast is for an August rate cut, but if markets prove right in that the Fed and ECB will have started cutting in either March or April, then the BoE moving earlier too cannot be ruled out.
The BoE decision came after the <a href=https://www.rttnews.com/3411379/fed-leaves-interest-rates-unchanged-hints-at-three-rate-cuts-in-2024.aspx target=_blank >Federal Reserve</a> kept the target range for the federal funds rate at 5.25 to 5.50 percent on Wednesday and hinted at three rate cuts in 2024.
The <a href=https://www.rttnews.com/3411662/ecb-holds-rates-steady-again-cuts-inflation-outlook.aspx target=_blank >European Central Bank</a> also maintained status quo. The main refinancing rate, or refi, was retained at 4.50 percent.
UK consumer price inflation is forecast to remain near to its current rate around the turn of the year. The near-term inflation path is somewhat lower than projected in the November Report.
Bank staff forecast <a href=https://www.rttnews.com/3411263/uk-economy-logs-unexpected-contraction.aspx target=_blank >GDP</a> growth to be broadly flat in the fourth quarter and over coming quarters. Official data showed that the economy shrank 0.3 percent in October.
