The Bank of England held interest rates at 5.25% today, ending a run of 14 consecutive hikes.
The decision was finely balanced after yesterday’s surprise drop in August’s inflation rate to 6.7%. Five members of the Monetary Policy Committee voted to hold and four to hike.
The FTSE 100 index, meanwhile, is under pressure after the Federal Reserve signalled US rates will stay high for longer in 2024.
Jeremy Batstone-Carr, European Strategist at Raymond James Investment Services, said: “The Bank of England’s Monetary Policy Committee has surprised the financial markets and delivered some relief to hard-pressed households by maintaining the base rate of interest at 5.25%.
“Undoubtedly, the overriding factor behind the Bank’s decision has been the fall in the UK’s inflation rate in August, particularly the sharp drop in underlying price pressures which indicate that earlier rate increases are beginning to work.
“Moreover, the economy’s weakness in July means that activity over the third quarter has been revised downwards, below the Bank’s previous expectation. This is a clear sign that inflationary pressures, including wage pressures, will continue to abate over the autumn months.
“In addition, recent data points to a slight easing in the labour market, confirming a slight increase in the unemployment rate which now stands above the Bank’s forecast.
“Also serving to sway policymakers, recent business surveys point to further weakness in coming months. The MPC is likely to have had early sight of tomorrow’s purchasing managers’ survey, thought likely to confirm subdued activity across both the manufacturing and service sectors.”
