Bank of England holds bank rate steady at 5.25%

21 Sep '23

2 min read

Pic: William Barton / Shutterstock.com

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The Bank of England's Monetary Policy Committee voted 5–4 to maintain the bank rate at 5.25 per cent, while unanimously agreeing to reduce UK government bond purchases by £100 billion.
The decision comes amid mixed UK economic indicators, including a decline in GDP and a fluctuating labour market.
Further monetary tightening may be needed.

In a closely contested decision, the Monetary Policy Committee (MPC) of the Bank of England has voted by a majority of 5–4 to maintain the current bank rate at 5.25 per cent. The meeting, which concluded on September 20, 2023, witnessed a divide as four members advocated for a 0.25 percentage point increase. The Committee unanimously agreed to reduce its stock of UK government bond purchases by £100 billion over the next year.

The MPC aims to meet a 2 per cent inflation target and sustain growth and employment. While CPI inflation is projected to return to the target by 2025 second quarter (Q2), recent data shows a decline in UK GDP and a loosening labour market. The current monetary policy is sufficiently restrictive, given significant rate hikes since the start of the tightening cycle, the Committee said in a media release.

This comes amid a backdrop of rising global inflationary pressures and challenges in the labour market. The MPC has committed to closely monitoring these factors, asserting that further tightening may be required to counter persistent inflationary pressures.

The UK's economic indicators show mixed signals. While GDP declined by 0.5 per cent in July, there are expectations for modest growth in Q3 2023. The labour market shows signs of loosening but remains tight historically, with the unemployment rate at 4.3 per cent. Average Weekly Earnings grew by 8.1 per cent, higher than expected, although this is inconsistent with other wage growth metrics. CPI inflation has fallen to 6.7 per cent, but core goods and services inflation vary. Inflation is expected to decrease further, despite ongoing pressures in the energy sector.

ALCHEMPro News Desk (KD)

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