The Bank of England has followed the US Federal Reserve in leaving its key interest rate unchanged in what was a major surprise.
In doing so the UK central bank’s decision also added substance to the decision the week before from the European Central Bank which pushed up its key market rate and made it clear it was going to now sit and watch what happens.
to the belief that interest rates will remain higher for longer, a belief that upset markets and saw big falls in UK, Europe and the US.
Gold and other commodities fell as bond yields, and the US dollar firmed – the Aussie dollar traded at just over 64.10 US cents.
The Bank of England decision came as a surprise – the vote was 5-4 on the nine person committee in favour of the pause with Governor, Andrew Bailey providing the 5th and decisive vote.
That sees the UK bank leaving its key rate at 5.25% after 14 increases – the Fed rate is a range of 5.25% to 5.50% and the ECB’s rate is 4.0%.
The rate decision followed better than expected inflation data in August that saw the consumer price dipping to 6.7% from 6.8% instead of rising back to 7% as widely predicted.
“There are increasing signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally,” the bank said in a statement.
“The MPC (Monetary Policy Committee) 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.”
“Inflation is falling and we expect it to fall further this year. That is welcome news,” Bank of England Governor Andrew Bailey said in a video statement.
“Our previous increases in interest rates are working, but let me be clear that inflation is still not where it needs to be, and there is absolutely no room for complacency. We’ll be watching closely to see if further increases are needed, and we will need to keep interest rates high enough for long enough to ensure that we get the job done.”