(Alliance News) - The Bank of England maintained UK interest rates at a 15-year high on Thursday, but the decision highlighted a divergence between policymakers, with a three-way split vote.
At its February meeting, the BoE kept the benchmark bank rate at 5.25%. It is the fourth successive hold, following one in September, which ended a streak of 14 consecutive hikes since December 2021, and two more in November and December. The BoE had rapidly increased bank rate from a Covid-19-induced low of 0.10%.
It was a split outcome, with six Monetary Policy Committee members, Governor Andrew Bailey included, favouring the hold. Two would have preferred rates to have been lifted by 25 basis points, they were Jonathan Haskel and Catherine Mann. One member, Swati Dhingra, preferred to reduce bank rate by 25 basis points, to 5.00%.
"Since the MPC's previous meeting, global GDP growth has remained subdued, although activity continues to be stronger in the United States. Inflationary pressures are abating across the euro area and United States. Wholesale energy prices have fallen significantly. Material risks remain from developments in the Middle East and from disruption to shipping through the Red Sea," the central bank said.
The BoE said that while services price inflation and wage growth have ebbed by "somewhat more than expected, key indicators of inflation persistence remain elevated".
"As a result, monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC's remit. The committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates," it said.
UK consumer prices unexpectedly heated up in December, according to data from the Office for National Statistics.
The ONS said the consumer price index rose by 4.0% annually in December, the pace of inflation notching up from a 3.9% increase in November. The reading came in hotter than market expectations, with consensus having been for price inflation to cool to 3.8%, according to FXstreet.
Meanwhile, the UK economy grew by slightly more than expected in November last year.
The ONS said the UK gross domestic product grew 0.3% on a monthly basis in November, having contracted by 0.3% in October. The market had been expecting 0.2% growth, according to FXStreet-cited consensus.
The next decision will be announced on March 21.
The pound bought USD1.2657 shortly after the decision, up from USD1.2635 beforehand.
The BoE's interest rate decision follows the US Federal Reserve's on Wednesday.
At the conclusion of its two-day meeting, the Federal Open Market Committee unanimously voted not to raise the fed funds rate, for the fourth meeting in a row. The key rate is targeted at a range between 5.25%-5.50%, the highest in nearly 23 years.
Speaking after the vote, Chair Jerome Powell said a rate cut in March, is not the "most likely case."
"I don't think it's likely that the committee will reach a level of confidence by the time of the March meeting, to identify that March is the time to do that," Powell told reporters at a press conference.
By Sophie Rose, Alliance News senior reporter
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