The Bank of England has held interest rates at 3.75%, as expected, but once again the decision was close.
The monetary policy committee voted by a slender majority, with four of the nine-members preferring a quarter point cut, indicating concerns about the slowing economy.
Bank of England governor Andrew Bailey voted for a hold but said he could “see scope for some further easing of policy”.
He had said in December that future decisions on interest rates would be a “closer call” and reiterated his forecast that inflation would fall close to the Bank’s 2% target from spring onwards. That is sooner than the 2027 prediction.
“That’s good news,” said Mr Bailey. “We need to make sure that inflation stays there. All going well, there should be scope for some further reduction in [the] Bank Rate this year.
Laith Khalaf, head of investment analysis at AJ Bell, said the vote was a “far more dovish result than was expected, especially when you consider that Andrew Bailey and Catherine L Mann voted to hold, but sound like they are close to nodding through a cut too.
“This will shift enormous focus onto the March meeting, where just one more policy maker voting for a cut could make it a reality.”
Esther Watt, bond strategist at wealth management firm Evelyn Partners, said: “The hold was widely anticipated and 98% priced in by the markets but there was some surprise dovishness in the vote.
“Dhingra, Taylor, Ramsden and Breeden all voting for a 25bp cut, and it was only Governor Andrew Bailey’s swing vote that decided the hold 5-4, when a 7-2 call had been expected by analysts.
“Mr Bailey cautioned that “judgements around further policy easing will become a closer call” and it’s hard to see how you get a closer call than 5-4 on the MPC without cutting rates.
“The odds on a March cut have shortened significantly in the light of the vote and some downbeat updates to the BoE’s quarterly updated forecast today.”
Susannah Streeter, chief investment strategist at the Wealth Club, said: “The Bank of England has pushed a big red pause button on interest rate cuts as caution remains the name of the game.”
She said signs of growth in the economy are there, but remain tentative, hence the committee’s restrained decision.
“The labour market is showing weakness, Budget changes are set to bring down energy and transport costs and a wave of cheaper Chinese goods are heading this way,” she says.
“So, more policymakers could well be swayed to vote for lower borrowing costs next month.”
Kevin Brown, savings specialist at Scottish Friendly, said: “December’s CPI uptick showed how quickly price pressures can reappear, and by holding rates today, the Bank of England clearly wasn’t prepared to risk another cut so soon.
“But this pause shouldn’t be mistaken for a change in direction. The labour market is cooling, wage growth is slowing, and inflation is anticipated to fall this year as price pressures fade.
“If that plays out as expected, one or two further cuts later this year are still on the cards, with spring still the most likely window for the next move.”
#Markets #interest #rate #edging #March #cut #Daily #Business