The Bank of England (BoE) announced its latest interest rate decision on Thursday, 2nd November 2023 to hold the bank rate at 5.25%.
The Bank of England’s (BoE) Monetary Policy Committee (MPC) voted by a majority of 5-4 to maintain Bank Rate at 5.25%, the highest level in 15 years. However, four members preferred to increase the bank rate, to 5.5%.
The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the next twelve months, to a total of £658 billion.
The BoE’s decision was influenced by the weak economic outlook, the high inflation rate, and the uncertainty surrounding the Covid-19 pandemic and the Brexit saga.
The BoE said that the UK economy was likely to contract by 0.5% in Q3 2023, and that underlying growth in the second half of 2023 was also likely to be weaker than expected. The BoE also warned that there was a 50% chance of a recession in the next year (50/50). I think even I could guess with odds at 50/50.
2% target inflation to be hit by Q2 2025
The BoE also said that inflation, which was 6.7% in September 2023, was expected to peak at around 7% in Q4 2023, before falling back to the 2% target by 2025 Q2. The BoE said that the inflation spike was largely driven by temporary factors, such as higher energy and food prices, and that it would not respond to it.
The Bank of England was behind the curve calling it transitory. Can we trust any future forecasts?
The BoE’s decision was in line with the market expectations, as most analysts and investors had predicted that the BoE would keep rates on hold.