Bank of England Keeps Interest Rates Unchanged, Quantitative Tightening Pace Eased

Strategic Insights -

The Bank of England's Monetary Policy Committee (MPC) voted 7-2 to maintain the base rate at 4%, a decision that was widely expected. The committee also voted to ease the pace of quantitative tightening (QT) by reducing the stock of UK government bond purchases held for monetary policy purposes by £70 billion over the next 12 months. This decision reflects a cautious approach, as policymakers seek to balance the need to control inflation with concerns about economic growth and the labor market.

Key Takeaways:

  • The MPC voted 7-2 to keep the base rate at 4%, with two members, Swati Dhingra and Alan Taylor, advocating for a 25 basis point reduction to 3.75%.
  • The committee eased the pace of quantitative tightening (QT) by reducing the stock of UK government bond purchases held for monetary policy purposes by £70 billion over the next 12 months.
  • Policymakers emphasized a "gradual and careful" approach to further rate cuts, highlighting the importance of monitoring underlying disinflationary pressures.
  • The two MPC members who voted for a cut cited "emerging slack" and expectations that currently elevated inflation will "normalise".
  • The decision was seen as broadly in line with market expectations, although some analysts noted that the pace of QT was slower than anticipated.
  • The minutes from the MPC meeting made no effort to prepare the ground for a November rate cut, suggesting that concerns about inflation expectations may be dominating the committee's thinking.
  • Economists expect the pause in interest rate cuts to extend into 2026, with some predicting three 25bp rate cuts to 3% by July 2026.

Statistics:

  • The base rate remains at 4%.
  • The MPC voted 7-2 to maintain the base rate.
  • Quantitative tightening (QT) will be reduced by £70 billion over the next 12 months.
  • The pace of active gilt sales will increase to £21 billion.
  • The 30-year yields have been at multi-decade highs.

Sources:

  • "The Bank of England keeps interest rates unchanged", BBC News, September 2024.
  • "Bank of England keeps interest rates at 4% as policymakers ease quantitative tightening", The Guardian, September 2024.
  • "Monetary policy committee decision", Bank of England.
  • "MPC minutes", Bank of England.