A third of the Bank of England’s interest rate setters voted for an immediate cut, suggesting a heightened level of concern over the state of the economy.
The decision by the Bank’s monetary policy committee to keep the base rate unchanged at 4.75% was no surprise, but there were raised eyebrows at the 6-3 split.
Dave Ramsden, the deputy governor, and the external members Swati Dhingra and Alan Taylor voted for a cut to 4.5%.
Governor Andrew Bailey said: “We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year.”
Peter Stimson, head of product at MPowered Mortgages, commented: “The fact that a third of the Monetary Policy Committee voted for an immediate rate cut suggests that several of the Bank’s decision-makers are more concerned by underlying economic issues than the jump in consumer inflation revealed yesterday.
“The surprise surge in wage inflation, rather than the jump in CPI to 2.6% – which had been widely expected – had caused some consternation on the swaps market, which determines mortgage interest rates more directly than the Bank’s base rate decisions.”
He added: “The minutes published alongside today’s decision should provide some rays of hope that the next base eate cut may be nearer than the markets are currently forecasting.”
Laith Khalaf, head of investment analysis, AJ Bell, also saw some significance in the split vote. ““As inflationary forces gather, the Bank of England isn’t going to be gung-ho about cutting interest rates.
“Nonetheless, the fact three members of the MPC voted to cut bank rate by 0.25% is a dovish signal which markets will likely respond to.
“The market is still pricing in two further rate cuts next year, but this is a big climb down in the course of just twelve months. At the beginning of 2024, the market was expecting no fewer than six interest rate cuts in the course of the year; we got two.
“Bond yields have been climbing as investors price in the new monetary reality. The 2 year gilt is now yielding 4.5%, up from 3.6% in August. Seeing as base rate has fallen over that period, that shows just how much expectations of future rate cuts have been reined in.
“It must be said there is currently a high degree of uncertainty over the future course of inflation, in part driven by a question mark over how much of Donald Trump’s rhetoric is going to find its way into policy, especially in terms of trade tariffs.
“No-one is expecting inflation to rise to double digits again, but sticky inflation still limits the capacity of the Bank of England to cut rates, even if it is only modestly above target.
“That’s going to keep borrowing costs elevated for companies, dampening the prospects for economic growth. It also lessens the chance of UK savers stepping outside the familiar walls of a cash savings account and investing in the UK stock market, which means we aren’t likely to see a big 2025 revival in the London Stock Exchange, at least not as a result of more positive retail investors flows.”
