- Prior 4.75%
- Bank rate vote 6-3 vs 8-1 expected (Dhingra, Ramsden, Taylor voted to cut bank rate by 25 bps)
- A gradual approach to removing monetary policy restraint remains appropriate
- We can't commit to when or by how much we will cut rates in 2025 as economic uncertainty is high
- Services consumer price inflation has remained elevated
- Remaining domestic inflationary pressures are resolving more slowly
- Most indicators of UK near-term activity have declined
- Labour market is broadly in balance
- But there remains significant uncertainty around its developments, especially wage indicators
- Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further
- Full statement
The bank rate vote is a bit of a surprise but well flagged by Barclays here as an outside risk, that has now of course come to fruition. Dhingra, Ramsden, and Taylor are of the view that "most recent data developments pointed to sluggish demand and a weakening labour market, now and in the year ahead, both of which would see further downward pressure on demand, wages, and prices".
As for the policy statement itself, the main point is largely unchanged in that the BOE will stick to a more "gradual" approach in cutting rates going into next year. But they did add this one sentence into the final passage:
"The Committee continues to monitor closely the risks of inflation persistence and will assess the extent to which the evolving evidence is consistent with more constrained supply, which could sustain inflationary pressures, or with weaker demand, which could lead to the emergence of spare capacity in the economy and push down inflation."
In other words, they're acknowledging that there are two-way risks to inflation and that could see them also looking to pause on cutting rates during some meetings in 2025. For now, they will have to approach things on a meeting-by-meeting basis still.
The bank rate vote split is certainly something that stands out today and that is weighing on the pound slightly. GBP/USD is down to 1.2605 now from around 1.2630 before the decision. Meanwhile, EUR/GBP is now up 0.3% on the day to 0.8250 currently.
That being said, I don't see it as being that crucial of a factor in dragging sterling any more lower than it currently is. But if there is much softer data in the months ahead, the fact that we have a split vote of 6-3 means that any reason calling for a rate cut will definitely be amplified.
