BoE Pauses Rate Hikes at 4% in Narrow Vote
The Bank of England (BoE) held interest rates steady at 4% in a knife-edge decision, ending a streak of 12 consecutive hikes. The Monetary Policy Committee (MPC) voted 5-4 to pause, reflecting deep divisions over tackling inflation without worsening economic stagnation.
Governor Andrew Bailey called the move “finely balanced,” noting that prior hikes are still working through the economy. Markets had priced in a 50% chance of a hike, leaving the pound volatile post-announcement.
Why the BoE Paused – Key Factors
- Stubborn Inflation: At 6.8%, UK inflation remains triple the BoE’s 2% target, but energy price drops and supply chain improvements offer hope for a late-2023 decline.
- Split MPC Vote: Hawks pushed for a 25bps hike to curb wage growth (7.8%) and services inflation (7.4%), while doves warned of over-tightening as GDP shrinks.
- Recession Fears: July’s 0.5% GDP contraction and near-zero growth forecasts pressured the BoE to avoid deeper economic damage.
Market Reactions and Future Projections
- Sterling dipped 0.3% against the dollar, while 10-year gilt yields rose, signaling lingering inflation concerns.
- Analysts split: Capital Economics predicts a November hike; others argue the cycle is over.
- Global divergence: Contrasts with the Fed’s “higher-for-longer” stance and the ECB’s recent hawkish hike.
What’s Next for the UK Economy?
The BoE’s pause offers businesses temporary relief but keeps households on edge. Key indicators to watch:
– September’s inflation report (due October 18)
– Q3 wage growth and unemployment data
– PMI surveys for signs of recovery
With inflation still unchecked and growth stagnant, the BoE’s next move hinges on data—making 2023 a high-stakes waiting game.
