The Bank of England’s Monetary Policy Committee voted in favour of leaving the base rate at 5.25%.
Governor Andrew Bailey insists rates needed to be held high to squeeze inflation out of the economy. In its latest forecast, the Bank cut expectations for UK growth to zero, down from a previous prediction of 0.5%, while annual growth will remain below 1% for the next four years. In brighter news, the Bank believes inflation has already fallen below 5% and expects it to fall to 3.8% by next March, and around 3.6% in the spring. However, the Bank does not expect price rises to hit its 2% target for two more years.
UK GDP is expected to have been flat in 2023 Q3, weaker than projected in the August Report. Some business surveys are pointing to a slight contraction of output in Q4 but others are less pessimistic. GDP is expected to grow by 0.1% in Q4, also weaker than projected previously.
Suren Thiru, Economics Director at ICAEW said “The decision to keep interest rates on hold and the increased number of Monetary Policy Committee members voting for this outcome are further evidence that rates have now peaked.”
“While this interest rate hiking cycle may be over, the lagged impact of previous tightening means the protracted squeeze on mortgage holders, businesses and the broader economy is far from over.”
“With the Bank of England expecting the economy to weaken further, the case for interest rate cuts is only likely to increase.”
Anna Leach, CBI Deputy Chief Economist, said “The decision from the Bank of England to hold rates again for a second month running will be welcome news to hard-pressed households and businesses dealing with higher borrowing costs.”
“However, with the backdrop of still high inflation, wage growth still well above levels consistent with the inflation target, and given services inflation actually rose in September’s data, monetary policy will need to remain tight for some time in order to decisively drive inflation back to target.”
“The controversy surrounding the official labour market data is an extra complication for the Bank’s assessment of economic conditions. But a variety of data on the labour market, in combination with figures on economic activity, suggest that the economy is weakening and the labour market loosening in response to the highest interest rates for over a decade.”
“The weakness of the UK’s economic performance necessitates a deftly delivered policy package to support a step-change in productivity, while also balancing the public finances.”
“The CBI’s Autumn Statement recommends action in areas that can act as a catalyst to for unlocking business investment, including delivering an internationally competitive business environment; mobilising the potential and productivity of the UK’s workforce; and realising the UK’s net zero growth opportunity.”
David Bharier, Head of Research at the British Chambers of Commerce, said “Today’s decision to again hold the interest rate at 5.25% will allay some concerns of the businesses we speak to that are unable to stomach further rises.”
“Our research has shown that interest rates have grown as a key issue among companies. This is especially true for smaller firms and those in the consumer-facing sectors, who have seen rising borrowing costs and decreased customer demand.”
“The BCC’s Quarterly Economic Survey for Q3 found that 45% of all firms cited interest rates as a concern. With inflation set to ease further, and GDP and labour market data indicating the economy is cooling, the Chancellor’s Autumn Statement must set out a plan for growth.”
“SMEs have been operating in an uncertain climate for too long, with policies constantly chopping and changing over the past few years. They need to see clear direction from decision makers, creating a roadmap for business that really boosts confidence and investment.”