UK enters 'new phase of suspended animation' after Bank of England holds rates

investmentweek.co.uk:

Inflation is now projected to return to 2% at the end of 2025, compared to Q2 2025 as expected at the MPC’s previous September meeting.

While three members of the central bank's Monetary Policy Committee voted to raise interest rates by 25bps to 5.5%, a six member majority successfully maintained rates 5.25%.

The Bank also revised its macroeconomics forecasts upwards, expecting inflation to decline to 4.75% in the current quarter, before dropping to 4.25% in the first quarter of 2024 and 3.75% in the second quarter.

Inflation is now projected to return to 2% at the end of 2025, compared to the second quarter of 2025, as expected at the MPC's previous September meeting.

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Fredrik Repton, senior portfolio manager at Neuberger Berman, said that the upwards revision for the Bank's inflation forecast likely «had some influence» on the three members of the MPC choosing to vote for another hike.

«However, the growth forecast profile was adjusted lower for the second half of 2023 and 2024, in line with the weaker data that we have been seeing since the end of the summer,» he noted.

Laith Khalaf, head of investment analysis at AJ Bell, said the decision indicated the entrance of a «new phase of suspended animation in the monetary cycle».

«The first phase was denial, as the Bank steadfastly maintained that inflation was transitory. This gave way to a sustained period of flurried action, as the Bank raised interest rates by 5% in less than two years. We are now entering the third, agonising phase of the interest rate cycle: wait and see,» he said. 

«Tighter monetary policy takes time to bed in, and the Bank does not yet know if they have made the porridge too