Bank of England Keeps Interest Rate Unchanged

LONDON (Reuters) – The Bank of England kept its main interest rate unchanged at 4.75% on Thursday, but policymakers are divided on the need for rate cuts to address a slowing economy.

Three members of the nine-person Monetary Policy Committee voted for a quarter-point rate cut, exceeding expectations from economists polled by Reuters. However, BoE Governor Andrew Bailey emphasized the necessity of a “gradual approach” to any rate reductions.

MARKET REACTION:

• STOCKS: London's FTSE-100 stock index cut its losses after the BoE's decision, down approximately 1.1% by 1215 GMT. The domestically focused FTSE-250 followed a similar trajectory.
• FOREX: Sterling dipped against the dollar, rising 0.2% to $1.26080, from $1.2628 prior to the decision.
• BONDS AND MONEY MARKETS: Rates-sensitive two-year gilt yields decreased by less than a basis point to 4.46%, with traders anticipating two additional BOE rate cuts in the coming year.

COMMENTS:

Chris Scicluna, Head of Economic Research, Daiwa Capital Markets:

> “There is a very decent case for a rate cut, and the market pricing has become more hawkish. The UK economy is flatlining, suggesting the monetary policy stance is too tight.”
> “I expect a cut in February when the BoE updates its projections.”

Neil Birrell, Chief Investment Officer, Premier Miton Investors:

> “The Bank of England left the base rate unchanged. Clearly, inflation is its major concern rather than a stagnating economy. The outlook remains difficult.”