The Bank of England’s Monetary Policy Committee (MPC) voted today by a small majority to keep its base rate at 4%.
The MPC voted narrowly by 5-4 to keep the rate on hold for the time being as inflation remains at 3.8%, above the bank's 2% target.
The decisions means the base rate is held at its lowest level for over two years. This year the BoE has cut the base rate three times.
At its November meeting the Monetary Policy Committee voted by a majority of 5–4 to maintain Bank Rate at 4%.
Four members voted to reduce Bank Rate by 0.25 percentage points, to 3.75%, according to MPC minutes.
The MPC said that CPI inflation is judged to have "peaked."
The MPC said:"Progress on underlying disinflation continues, supported by the still restrictive stance of monetary policy. This is reflected in an easing of pay growth and services price inflation. Underlying disinflation is being underpinned by subdued economic growth and building slack in the labour market.
"Monetary policy is being set to balance the risks around meeting the 2% inflation target sustainably. The risk from greater inflation persistence has become less pronounced recently, and the risk to medium-term inflation from weaker demand more apparent, such that overall the risks are now more balanced. But more evidence is needed on both.
"The restrictiveness of monetary policy has fallen as Bank Rate has been reduced. The extent of further reductions will therefore depend on the evolution of the outlook for inflation. If progress on disinflation continues, Bank Rate is likely to continue on a gradual downward path."
Many experts had expected the rate to be held but some had forecast a small cut.
George Brown, senior economist at Schroders, said: "Holding rates today was the right decision, with inflation still nearly double the 2% target. The Bank will be in a stronger position after the dust settles from the Budget, armed with additional jobs and inflation data, to judge whether further easing is warranted in December.
"A cautious approach remains appropriate given the risk that high inflation becomes entrenched, due to sticky wage growth and subdued productivity. However, this may change if reports the Chancellor intends to double her fiscal headroom to £20 billion, through fiscal tightening in the region of £40 billion, are true. Alongside mooted tax cuts on household energy bills, if these measures materialise, they could create scope for the Bank to cut multiple times next year."
Charlie Ambler, co-chief investment officer and partner at wealth manager Saltus, said: “Any forward guidance will likely remain cautious ahead of the Autumn Budget. The Chancellor is expected to announce a wave of tax hikes that could harm economic growth and subsequently provide grounds for a rate cut in December. In the interim, the Bank must uphold its duty to provide certainty and avoid deviating from its slow and steady cutting cycle.
“Investors should be prepared for a more selective market environment, with quality, resilience and income-generation remaining key themes in portfolio construction. While a future rate cut may disincentivise saving and entice investors to take advantage of opportunities in interest rate sensitive sectors and UK equities, investors should remain focused on long-term returns.”
The next base rate decision is due on 18 December.
