MNI BOE WATCH: On Hold, But Rate Outlook Leaning Lower

The Bank of England Monetary Policy Committee left its policy rate on hold at 4.0% in November by the narrowest of margins, with four of the Committee’s nine members voting for a 25-basis point cut.

Governor Andrew Bailey was the key swing voter, backing no change. He was accompanied by Megan Greene, Clare Lombardelli, Catherine Mann and Huw Pill, who had all previously made clear their wariness over policy easing.

The MPC stated that inflation, which hit 3.8% in September, had peaked, with the risks to the outlook more balanced as the possibility of greater inflation persistence declined and that Bank Rate was “likely to continue on a gradual downward path.” (see MNI BOE WATCH: Budget Proximity Gives MPC Cover For Nov Hold )

Speaking to the press following the decision, Bailey offered little new to the information contained in the newly-styled policy report. However, he said little to dissuade anyone from the view that the chance of a December rate cut remains on the table. (See MNI INTERVIEW: BOE Dec Cut Chances Overestimated - Saunders )

“Upside risks to inflation have become less pressing since August and I see further policy easing to come if disinflation becomes more clearly established,” he said, though he made the case for waiting for further data before cutting again.

While recent evidence points to growing slack in the economy, it came from just one month’s data, while labour costs were still high and wage growth could flatline, he added. The key BOE agents pay survey, which was very accurate for 2025, will not be available until the February meeting. 

The quarterly central projection, which has been de-emphasised in policy communication, showed CPI at 2.5% in Q4 next year and at the 2.0% target in Q4 2027 before edging up to 2.1% in Q4 2028. (See MNI INTERVIEW: BOE Should Hold In November - Sentance )

MEMBER VIEWS

The minutes, for the first time, contained summaries of individual members’ views. On the hawkish end of the spectrum, Greene said she still thought inflation risks were to the upside while Lombardelli worried there was more inflationary pressure than captured in the central projection and that a policy reversal would be costly for MPC credibility.

Mann argued for holding policy whether the upside or the downside scenario prevailed over the central projection, and Chief Economist Pill advocated a slower pace of easing.

On the dovish wing, Sarah Breeden and Swati Dhingra argued that disinflation remained on track while Dave Ramsden said downside inflation risks were more prominent. Alan Taylor dissented from the central projection, saying his own growth and inflation projections were weaker.

The savings rate was forecast to decline from 10.9% this year to 8.8% by 2028, but the MPC highlighted the risk that it might not decline.