Bank Of England Holds Key Rate Steady; More Members Sought Reduction

(RTTNews) - The Bank of England decided to leave its benchmark rate unchanged on Thursday as majority of policymakers called for a gradual approach to the withdrawal of policy restrictiveness amid acceleration in inflation and wage growth, while the divide in the rate-setting body widened.

The Monetary Policy Committee, led by Governor Andrew Bailey, voted 6-3 to hold the bank rate at 4.75 percent in the final policy session for the year. "A gradual approach to removing monetary policy restraint remained appropriate," the BoE said.

Policymakers Swati Dhingra, Dave Ramsden and Alan Taylor preferred a quarter-point reduction, as they assessed that a less restrictive policy rate was warranted, given the evolving balance of risks.

The majority of members observed that the recent developments added to the argument for a gradual withdrawal of policy restrictiveness and eschewing any commitment to changing policy at a specific meeting, the minutes said.

The UK central bank had reduced the interest rate by 25 basis points in August, which was the first cut since March 2020. Citing the improvement on inflationary front, the bank had lowered the rate again by same volume in November.

Bank staff expects GDP growth to have been weaker at the end of the year than projected earlier. The economy is forecast to post zero growth in the fourth quarter compared to 0.3 percent estimated in the November report.

In the near term, headline inflation was expected to continue to rise slightly. Inflation, wage growth and some indicators of inflation expectations increased, adding to the risk of inflation persistence, the bank said.

The Confederation of British Industry Interim Deputy Chief Economist Alpesh Paleja said the bank is expected to cut rates four more times over the coming year. "If growth prospects worsen more materially, dampening domestic price pressures in the process, we may be looking at a scenario where rates are cut at a faster pace," said Paleja.