September 21, 2023 (MLN): The Bank of England (BoE) decided to leave its key interest rate unchanged at 5.25%, the latest data issued by the BoE showed today.
Notably, this comes after the central bank raised its interest rates for the past 14 consecutive meetings, taking the interest rates from 0% in December 2021 to 5.25% in August, pushing borrowing costs to their highest level since the 2008 financial crisis.
The committee also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes and financed by the issuance of central bank reserves, by £100 billion over the next twelve months, to a total of £658 billion.
The MPC voted by a majority of 5–4 to maintain the Bank Rate at 5.25%, while four members preferred to increase the bank rate by 0.25%, to 5.5%.
The central bank cited that the CPI inflation is expected to return to the 2% target by 2025 Q2.
Afterward, It is projected to fall below the target in the medium term, as an increasing degree of economic slack was expected to reduce domestic inflationary pressures, alongside declining external cost pressures.
Moreover, UK GDP was estimated to have declined by 0.5% in July and the S&P Global/CIPS composite output PMI fell in August, although other business survey indicators remain consistent with positive GDP growth.
While some of this news could prove erratic, Bank staff now expect GDP to rise only slightly in 2023 Q3. Underlying growth in the second half of 2023 is also likely to be weaker than expected.
To note, CPI inflation fell from 7.9% YoY in June to 6.7% YoY in August, 0.4% below expectations at the time of the Committee’s previous meeting, and triggering the exchange of open letters between the Governor and the Chancellor of the Exchequer that is being published alongside this monetary policy announcement
