BoE leaves rates on hold, but door is ajar for a December cut

As expected, the Bank of England kept rates unchanged at 4% but the vote was close, 5-4 in favour of unchanged with Alan Taylor, Swathi Dhingra, Alan Taylor and Dave Ramsden all voting to reduce by 0.25%

The central bank appears to think that inflation has peaked and that disinflation is now starting to kick in.

While there is a body of thought that suggests that they should have cut rates today, the fact remains that inflation is still almost double their headline target. The bank says it expects inflation to return to target by the end of 2027.

That may well happen but the greater risk is that while headline inflation may well have peaked it may not come down as quickly as the central bank might like it to. It is this concern that prompted 5 members, Bailey, Pill, Lombardelli, Greene and Mann to vote to keep rates where they are.

There is also the risk of the upcoming budget which could muddy the waters further which suggests that the calculus on risk for these 5 members was to wait and see what further hand grenades the Chancellor is likely to lob into the economy before making a decision to cut rates in December.

Greene appears to be an outlier in her view that inflation risks remain to the upside.

The rest of the committee appear to lean in the direction of inflation persistence more than upside risks, which suggests that at least one of them could switch in December once the details of the 26^th November budget become known.

The pound has slipped back from its intraday peaks against the US dollar on the back of the closer than expected vote split, just above its recent 7-month lows at 1.3010, and 3-year lows against the euro/. Gilt yields are little changed.