The Bank of England held its key lending rate steady Thursday, snapping a near two-long run of increases, following a surprise pullback in inflation and indications that central banks around the world are nearing the peak of their hard money cycle.
The Bank of England kept its key Bank Rate unchanged at 5.25%, the highest since prior to the global financial crisis in 2008, in a five to four decision that surprised markets and pushed the pound to a multi-month low of 1.2268 against the U.S. dollar. Governor Andrew Bailey ultimately cast the deciding vote on the nine member Monetary Policy Committee.
Another surprise pause, this time from the Swiss National Bank – which left its key rate unchanged at 1.75% earlier this morning – may have also compelled the Bank of England to adopt its new 'wait-and-see' approach as growth metrics deteriorate and inflation shows signs of easing.
The decision follows some good progress on the inflation front over recent months," said Rob Clarry, investment strategist at wealth manager Evelyn Partners. "In the absence of further shocks, it looks like the BoE is now at, or very close to, the end of its hiking cycle."
"Attention will now turn to rate cuts, although markets are only pricing one 25 bps cut by the middle of 2024," he added. "This is consistent with our expectation that the Bank will keep policy tight through 2024 as they continue to fight inflation."
Headline CPI eased to 6.7% last month, Britain's Office for National Statistics said Wednesday, and although the rate remains nearly triple the Bank's 2% forecast, it is quickly moving closer to the 5% level that officials have penciled in for the coming months.
Britain's economy shrank by a more-than-expected 0.5% in July, the ONS said last month, thanks in part to a series of rail and health sector strikes as well as one of the wettest summer months on record that hit the nation's retail sector.
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