The MPC voted 7-2 to keep the Bank Rate at 4 percent until its next meeting in November, with only Swati Dhingra and Alan Taylor dissenting from the majority opinion. Governor Andrew Bailey and Deputy Governor for Markets Dave Ramsden, who had both voted for a cut at the MPC’s last meeting in August, changed their votes to “hold.”
While Bailey insists that interest rates are still trending down, the Bank repeated that it has to be “gradual and cautious” in easing policy, given that inflation is still running at 3.8 percent. The Bank expects it to fall over the next couple of years, reflecting what it called “downside domestic and geopolitical risks around economic activity.”
“Another rate cut after August’s historic double-vote was always a non-starter, especially as inflation continues to track well-above the Bank of England’s target of 2 percent,” Brad Holland, director of investment strategy at wealth manager Nutmeg, said in emailed comments. He noted that financial markets don’t fully expect another cut in interest rates until April.
Gilts under pressure
The Bank had been expected to slow the pace of “QT” to ease the pressure on the government’s long-term borrowing costs in particular. Yields on bonds with maturities over 10 years have risen around the world this year on growing concerns about the ability of governments to repay their debts.
Reforms to some big pension systems, including the U.K., have also meant that pension funds no longer have as much of an incentive to buy 30-year debt to match their liabilities.
The U.K. has been no exception to this trend: the yield on 30-year gilts hit 5.75 percent last month — its highest in 27 years — although it has since fallen back to a more manageable 5.43 percent. The gilt market has also been conspicuously more volatile this year than its peers in the U.S. and Europe at times when U.S. trade policy has caused jitters around the world.