Commenting, John Wyn-Evans, Head of Market Analysis at Rathbones, says: “The hold was widely expected. However, unlike the US Federal Reserve's recent ‘hawkish cut’, today's decision could be described as a ‘dovish hold’. The vote split was just 5-4 in favour of no change vs the 6-3 average view of economists polled by Bloomberg. There was also a subtle change in the policy wording, with the path of future rate cuts being described as ‘gradual’ rather than ‘careful’. Inflation risks are seen as more balanced than previously, helped by recent more favourable data. But Governor Andrew Bailey (who casts the deciding vote to hold) highlighted the need to see more data. Even so, more rate cuts are on the way, barring a shock. Market reaction was muted. In terms of interest rate expectations, futures prices still imply a further pause in December (63% probability of a cut), with the next reduction coming in February. The relatively dovish vote and tone of commentary provided a small boost to both equities and gilts, but nothing really meaningful. This event was always going to play second fiddle to the Budget on 26 November. The outcome of that and its impact on the growth and inflation outlook will play a large part in the next rates decision meeting on 12 December.”
Commenting, Alex Race, Chartered Financial Planner at Rathbones, says: “The last interest rate decision before the Budget offered no reprieve for the Chancellor, who may have been hoping for a cut to ease the fiscal conundrum. Lower borrowing costs could help boost consumer spending and encourage the business investment needed to support much needed economic growth. If, as in September, inflation cools more quickly than anticipated, the Monetary Policy Committee could sneak in a rate cut before Christmas - but that remains a big if. For households, this continued pause is unlikely to trigger a dramatic shift in the mortgage market, while savings rates appear to be on a downward trajectory.”
Chris Helyar, Partner in LCP’s investment team, commented: “The Bank of England’s decision to hold rates at 4.0% highlights the delicate balance the MPC faces between above-target inflation and growing signs of economic weakness. Headline CPI inflation remained elevated at 3.8% in September, even as the labour market softens and unemployment rose to 4.8% over the quarter to August”. By keeping rates unchanged at 4.0%, the MPC has opted for caution amid mixed signals. With Chancellor Rachel Reeves expected to unveil a tighter fiscal stance later this month, the MPC will likely reassess the case for further rate cuts in December. Today’s pause reflects the need to weigh up the opposing signals coming from inflation and growth as well as Budget uncertainty.”
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