BoE votes 5-4 to lower bank rate to 3.75% amid inflation progress
The Bank of England on Thursday reduced interest rates by 25 basis points but said judgements around further policy easing will become a ‘closer call’.
In a split vote, the BoE’s Monetary Policy Committee voted 5-4 for a quarter point cut which takes bank rate to 3.75% from 4.0%.
The decision and vote make-up was in line with the FXStreet consensus.
Five members of the nine strong MPC, including BoE Governor Bailey, supported the 25 basis points cut.
Bailey was joined by Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor in backing the move, judging that upside risks to inflation have continued to recede.
Megan Greene, Clare Lombardelli, Catherine Mann and Huw Pill pressed the case for the status quo, placing greater weight on prolonged inflation persistence, including from structural factors.
In a statement, the MPC said: ‘On the basis of the current evidence, bank rate is likely to continue on a gradual downward path. But judgements around further policy easing will become a closer call.’
It is the fourth rate cut this year, after reductions in February, May and August.
In November, the MPC voted 5-4 to leave rates unchanged with Bailey’s decision to stick with the status quo proving pivotal.
On Thursday, Bailey said ‘data since our latest meeting suggests that disinflation is now more established,’ while measures in the budget should reduce inflation further in the near term.
‘The key question for me now is the extent to which inflation settles at the 2% target in an enduring way,’ he added.
‘While I see scope for some additional policy easing, the path for bank rate cannot be pre-judged with precision, recognising in part the more limited space as bank rate approaches a neutral level,’ he said.
On the jobs market, he said: ‘While I do not yet see conclusive evidence of a sharper downturn in the labour market, we should be vigilant.’
On Wednesday, figures showed the headline consumer prices index rose 3.2% year-on-year in November, slowing from 3.6% in October, and well below FXStreet-cited consensus of 3.5%.
The figure was below the 3.4% forecast in November’s BoE Monetary Policy Report.
Similarly, core CPI inflation, which excludes energy, food, alcohol and tobacco, slowed to 3.2% from 3.4% against expectations for it to remain unchanged.
On Tuesday, figures showed the unemployment rate rose to 5.1% in the three months to October, up from 5.0% in the three months to September.
In addition, average weekly earnings growth eased with total pay including bonuses rising by 4.7% in the three months to October, down from 4.9% previously.
The pound traded at $1.3376 after the decision, up from $1.3357 shortly before midday when the rate call was announced.
The yield on 10-year gilts was at 4.49%, a touch higher than 4.48% before the announcement.
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