Last month, the Bank of England announced a pause in its long run of interest rate rises following an unexpected dip in the UK headline rate of inflation and ‘increasing signs’ that higher rates were starting to hurt the real economy.
Following its latest meeting, which concluded on 20 September, the BoE’s Monetary Policy Committee (MPC) voted by a narrow margin to leave Bank Rate unchanged at 5.25%. This was the first occasion since December 2021 that an MPC meeting had not resulted in the Bank’s benchmark rate of interest being raised.
The decision was clearly a very close call with four of the nine-member committee voting to increase rates by a further 0.25 percentage points. The minutes to the meeting also reiterated that the MPC would be prepared to raise rates again if there was ‘evidence of more persistent inflationary pressures.’ They also repeated previous guidance that monetary policy would remain ‘sufficiently restrictive for sufficiently long’ to return inflation back to its target level.
Commenting on the day the decision was announced, BoE Governor Andrew Bailey said, “Inflation has fallen a lot in recent months and we think it will continue to do so." The Governor did, however, warn against “complacency” and “premature celebration” and added, “We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that."
Data published by the Office for National Statistics (ONS) the day before the MPC’s announcement had revealed a surprise fall in inflation. The Consumer Prices Index (CPI) 12-month rate – which compares prices in the current month with the same period a year earlier – fell to 6.7% in August, down from 6.8% in July. Most economists had predicted a slight uptick in August’s CPI rate primarily due to a rise in global fuel prices.