Bank of England leaves interest rates at 15-year high, says policy to stay tight for ‘extended period'

Since the Bank of England's last economic projections, inflation has weakened, economic activity has softened and the labor market has shown signs of loosening.

Bank of England leaves interest rates at 15-year high, says policy to stay tight for ‘extended period'

Since the Bank of England’s last economic forecasts, the inflation rate has declined, the economic activity has decreased, and the labor market is showing signs of loosening.

The yields on U.K. two-year gilts fell to their lowest level since June, ahead of Thursday's Bank of England decision. Prices and yields are inversely related.


Bank of England

On Thursday, the Fed left interest rates unchanged but stated that monetary policy would likely have to remain tight for "an extended period of time."

The Monetary Policy Committee, voting 6-3 to keep the Bank's main rate at 5.25%. Three members preferred a 25-basis-point hike to 5.5%.

This morning was a bit earlier than usual.

Markets were pricing in around an 89% probability

According to LSEG, a second consecutive hang is possible after the

Bank stopped a streak of 14 consecutive hikes in September


The MPC's most recent projections suggest that the monetary policy will likely need to remain restrictive for a long time. In its statement on Thursday, the MPC stated that further tightening of monetary policy may be needed if persistent inflationary pressures are evident.

Since the MPC last projections,

The inflation rate has fallen to 6.7%, but is still well above the 2% central bank target

The labor market is also showing signs of loosening.

The Committee noted in its accompanying Monetary Policy Report that inflation had fallen below its expectations set out in August. The Bank expects that the consumer price index will average around 4.75% during the fourth quarter 2023, before falling to 4.5% for the first quarter next year and 3.75 percent in the second quarter 2024.

In the third quarter 2023, the MPC projected that the U.K.'s GDP would have stagnated. This is a lower performance than what was predicted in August. Now, the GDP is expected to rise by only 0.1% in fourth quarter. This is also lower than what was predicted in August.

Since the MPC made its previous decision, little has changed in terms of key indicators for U.K. Inflation persistence. The MPC stated that there have been signs of an impact of tighter monetary policies on the labour markets and the momentum of the real economy in general.

The report said that the monetary policy would need to be "sufficiently restrained for a sufficiently long time" in order to sustainably return inflation to 2%.

Jeremy Hunt, British Chancellor of Exchequer, said separately that the U.K. had been "far resilient than many anticipated" but the best way for prosperity to be delivered is through sustainable growth.

He added, "The Autumn Statement will outline how we can boost economic growth through unlocking private investments, getting more Brits to work and delivering an even more productive British State."

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U.S. Federal Reserve

On Wednesday, also

The rate of inflation was kept unchanged, but the economic growth estimate was upgraded.

Chairman Jerome Powell has insisted that the Federal Open Market Committee will not be discussing any rate cuts for now.

The markets, however, interpreted his comments during the press conference that followed as being dovish. This led to a significant fall in short-term

Treasury yields

This spilled into Europe and Britain.

Two-year U.K. Gilt yields

The Bank of England will announce its decision on Thursday. Prices and yields are inversely related.