The Bank of England is finally signaling that it may have done enough to tame inflation, ITV News' Economics Editor Joel Hills reports
It’s a hold.
After 14 interest rate rises in the space of 20 months, the Bank of England is finally signaling that it may have done enough to tame inflation. For now, at least.
First thing to note: it was a close call.
Andrew Bailey, the Governor, proposed to maintain Bank Rate at 5.25%. Four members of the Monetary Policy Committee (Ben Broadbent, Swati Dhingra, Huw Pill and Dave Ramsden) voted with him.
Four members (Jon Cunliffe, Meghan Greene, Jonathan Haskel and Catherine Mann) wanted to hike again. Group-think this wasn’t.
Until now, the Bank has expressed three reasons for increasing interest rates. The tightness of the labour market; the strength of pay growth; and the rate of inflation in the Services sector of the economy (a good steer to what is happening to prices and wages domestically).
Unemployment has begun to rise, employment is edging down along with the number of vacancies in the economy.
Pay growth in the private sector is still running above 8% but survey data elsewhere tells a story of falling wage inflation and most MPC members seem inclined to believe it.
The big surprise, which the Bank had sight of on Monday, was Services inflation. The Bank had expected it to rise to 7.1% in August, instead it fell to 6.8%.
The headline rate of inflation is edging down and the majority of the MPC believes that the evidence - which is not conclusive - suggests there are reasons to believe we are now seeing a broad-based and sustainable slowdown in price rises.
ITV News' Economics Editor Joel Hills explains what today's announcement means and happens next
Second thing to note: it is not “job done”.
The Bank has applied the brakes but it is not for a moment suggesting the battle against inflation has been won.
Interest rates may have stopped rising but the minutes point out they will rise again at the first sign of “more persistent inflationary pressures”.
And only one member of the MPC is talking about interest rate cuts.
The message here is about Bank Rate needing to be “sufficiently restrictive for sufficiently long to return inflation to its 2% target”.
“There is no room for complacency,” warns the Governor, Andrew Bailey.
Investors are betting that interest rates will remain at a little under 5% for the next three years. The Bank is not challenging that view.
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