United Kingdom: BOE holds rate steady in September – UOB Group

As expected, the Bank of England (BOE) voted by a majority of 7–2 to maintain the Bank Rate at 4.00% in September. Two members from the Monetary Policy Committee (MPC) - Swati Dhingra and Alan Taylor - voted to reduce Bank Rate by 25bps to 3.75%. The Committee also voted by a majority of 7–2 to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by GBP70bn over the next 12 months, to a total of GBP488bn, UOB Group's economist Lee Sue Ann reports.

Outlook remains highly uncertain

"The Bank of England (BOE) voted by a majority of 7–2 to maintain the Bank Rate at 4.00% in Sep. The key policy guidance was left unchanged, with the central bank reiterating that a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate."

"Although the UK labour market is gradually cooling, elevated price pressures are fueling inflation expectations among consumers. The latest MPC decision comes a day after data showed inflation remaining sticky. Hence, it was not surprising to see the latest statement now also highlighting that upside risks around medium-term inflationary pressures remain prominent in the Committee’s assessment."

"Our base case is for a 25 bps cut at the next meeting on 6 Nov, on the premise of the weakening in labour demand, and assuming there will be better news in the next set of inflation numbers (due 22 Oct). Still, the outlook remains highly uncertain due to elevated inflation expectations. We are also mindful that the UK Budget is also scheduled for 26 Nov, possibly complicating the BOE’s outlook on growth and inflation. For now, we will keep to our BOE forecasts, but the economic data will decide one way or the other, and we will update accordingly."