'A tough call': Bank of England dovish move signals 'higher for longer' rates policy

investmentweek.co.uk:

After today’s pause, there is broad consensus among analysts that this may have been the Bank of England’s last interest rate hike in this cycle.

For the first time in almost two years, the BoE opted to leave borrowing costs at 5.25% today (21 September), while warning that rates will remain high to tackle inflation. The committee's decision was a close call, with five voting to pause, while four voted in favour of a 25bps hike. 

«Enough voters were either satisfied that inflation will not prove to be overly sticky or were concerned enough about downside risks to believe that a pause was warranted despite still high levels of inflation,» said Oliver Blackbourn, portfolio manager at Janus Henderson.

Investors had widely predicted the 15th rise in a row to 5.5% from 5.25%, but on the morning of the decision, only half of investors expected a rise, after it was reported on Wednesday (20 September) that UK inflation unexpectedly fell to 6.7% in August. 

Bank of England holds rates at 5.25% in 5-4 split vote

While inflation eased last month and there were signs of a weakening labour market, wage growth, a key driver in prolonging high inflation, has risen to over 8%. Meanwhile, the UK economy contracted by more than expected in July, giving way to recessionary concerns. 

Katharine Neiss, chief European economist at PGIM Fixed Income, said the BoE's decision to hold rates was «surprising», and noted this was the most dovish statement and decision seen from a major central bank recently.

«Not only did the BoE hold, but the statement was also very dovish, with no forward guidance nor sense that rates might need to go higher if inflation remains high,» she said. 

Janet Mui, head of market analysis at RBC Brewin Dolphin, also