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Following 14 straight rate rises, the Bank of England (BoE) has kept interest rates unchanged at 5.25%.
At its latest meeting, the Monetary Policy Committee (MPC) voted by a slim majority of 5–4 to maintain the current rate, though four members preferred to increase the rate to 5.5%.
The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £100bn over the next year.
Last month, the bank raised interest rates for the 14th consecutive time in a bid to combat inflation.
At the time, the MPC said it had set monetary policy to meet the 2% inflation target, adding that while inflation still remains “well above” the 2% target, it expected it to fall “significantly further”, to 5% by the end of the year.
In its latest meeting, the bank said that UK GDP is estimated to have fallen by 0.5% in July, and said it now expects GDP to rise only slightly in Q3 of this year, while underlying growth in the second half of 2023 is also “likely to be weaker than expected”.
It also noted there has been some further signs of a loosening in the labour market, although it remains tight by historical standards. The BoE said vacancies-to-unemployment ratio has continued to decline, reflecting both a steady fall in the number of vacancies and rising unemployment. The Labour Force Survey unemployment rate rose to 4.3% in the three months to July, higher than expected in the August Report.
In its latest announcement, the bank said: “The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation.
“Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the committee’s remit. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.”
