MNI BOE WATCH: Holds And Stresses Rates To Stay High-For-Long

The Bank of England left Bank Rate unchanged at 5.25% for a second consecutive meeting on Thursday, with Governor Andrew Bailey hammering home the message that it was likely to stay high for an extended period.

The Monetary Policy Committee voted six-to-three for unchanged policy, following a five-to-four vote in September. Bailey was keen to stress that the policy rate could be raised further if necessary, though the Bank's updated forecasts showed inflation coming in pretty close to the 2% target on both constant and market rates. (MNI BOE WATCH: Split MPC Seen On Hold For Second Time)

Inflation was still too high and there was "no room for complacency", Bailey told the post-decision press conference, adding it was "much too early to be thinking about rate cuts.” He said the Bank's models showed keeping the policy rate at a high level would squeeze inflation lower.

Bailey repeatedly denied trying to push back against the market rate path, which prior to the MPC's announcement indicated a peak rate only a fraction above 5.25%, with a first 25bp cut only fully priced in by the September 2024 meeting. This barely shifted after the policy decision and Bailey's commentary.

The MPC vote split was as widely expected, with all five insiders on the committee, including new Deputy Governor Sarah Breeden, and external member Swathi Dinghra, backing unchanged policy. The other three externals -- Megan Greene, Jonathan Haskel and Catherine Mann -- voted for a 25bp hike.

Asked if the next move was more likely down than up, Bailey was guarded, saying inflation risks were to the upside in part due to labour market tightness and that pay growth was inconsistent with meeting the inflation target. Deputy Governor Ben Broadbent said there was no particular message in the detail of the forecasts.

FEB STOCK TAKE

The Bank, as reported by MNI, did not publish its supply side stock take, which will come out in February, though it did revise up its estimate of the equilibrium jobless rate, or 'U*,' to 4.5% from a shade over 4.0%. This was influenced by the strength of earnings growth at a time when the jobless rate is around 4.0%, and could mean the Bank’s estimate of the UK’s non-inflationary growth rate could be revised down when the stock take is completed. (MNI INSIGHT: BOE Labour Market Stock Take Not Ready Until Feb)

Broadbent said the Bank had a "pretty good read" on labour market developments despite problems with the official Labour Force Survey, and noted that vacancies were falling.

The Bank’s forecasts pointed to a stagnating economy, with quarterly year-on-year growth projected to be zero in the fourth quarter of this year and the first quarter of next and just 0.1% in Q2 2024, before grinding up to 1.1%, about a percentage point below the August projection, by Q4 2026.

Asked if the Bank was prepared to risk recession to squeeze out inflation Broadbent made the point that whether growth was above or below zero was pretty much irrelevant, with the Bank's aim to deliver stable inflation around target.