BoE settles into a holding pattern

The Monetary Policy Committee voted to keep Bank Rate at 5.25% at November’s meeting. The lack of significant news on the inflation and pay front made the MPC’s decision straightforward. But this was a surprisingly hawkish hold, with the MPC feeling it necessary to emphasise that policy would need to be restrictive for “an extended period of time.”

What you will learn:

• The downgrades to the Bank of England’s near-term growth forecasts were consistent with recent weak activity data. A more pessimistic take on potential output explains the lack of a subsequent recovery and a higher inflation profile for 2024-2025. Although we have regularly stressed the likelihood that inflation and pay will be sticky, the new BoE inflation projections look too high.
• The policy debate has clearly moved on over the past couple of months, with further rate hikes unlikely. However, the MPC is equally at pains to emphasise that rate cuts are still some way off, even if activity contracts in the short term.
• We plan to stick with our current forecast that lower inflation will create room for a first rate cut in August 2024.