MPC maintain 5.25% base rate with majority vote

On Thursday 2nd November 2023, the Bank of England have again decided against another interest rate hike, continuing the trend of a stationary interest rate.

In September, the Monetary Policy Committee (MPC) decided against increasing the base rate, meaning it remained at 5.25% after the previous increase in August. The decision today from the MPC will mark the second time in a row that the central bank has decided to vote against raising interest rates.

The committee voted at a majority of 6-3, with base rate remaining at 5.25% for at least the next six weeks. Governor Andrew Bailey was one of the six who held the majority voting to leave interest rates unchanged.

Having left rates on hold, the Bank of England insist that holding higher interest rates is helping to bring inflation down,  stating that the speed at which price rises are slowing suggests inflation with fall further this year and next. Commenting on this, the Bank of England said, “We will keep interest rates high enough for long enough to get inflation back to the 2% target.”

The minutes of today’s interest rate decision say:

UK GDP is expected to have been flat in 2023 Q3, weaker than projected in the August Report. Some business surveys are pointing to a slight contraction of output in Q4 but others are less pessimistic.

GDP is expected to grow by 0.1% in Q4, also weaker than projected previously.

Notes from this meeting indicate that the Bank of England is more pessimistic about the UK economy than it was three months ago. Predictions suggest the economy stagnated during the last quarter, and will only grow narrowly in the final months of this year.

Keeping interest rates high for an extended period of time will tackle stubborn inflationary pressures, whilst the Bank of England warns the economy will be on the brink of recession in an election year. Giving a 50-50 chance of a recession in the middle of next year – beginning around the time a spring election could be held – the Bank of England forecasts four consecutive quarters of zero growth in gross domestic product, should interest rates continue to follow the path expected by financial markets.

Governor Andrew Bailey declared that it’s much too early to be thinking about rate cuts, adding:

“Higher interest rates are working and inflation is falling. But we need to see inflation continuing to fall all the way to our 2% target. We’ve held rates unchanged this month but we will be watching closely to see if further rate increases are needed.”

 

The Monetary Policy Committee will be holding their next meeting on Thursday 14th December 2023.

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