Bank of England keeps interest rates on hold

(Sharecast News) - The Bank of England left the cost of borrowing on hold on Thursday, as widely forecast, following a surprisingly close vote.

The rate-setting Monetary Policy Committee agreed by a majority of five to leave interest rates at 3.75%. The remaining four members backed a cut, to 3.5%.

The decision to leave Bank Rate unchanged was long expected. But the closeness of the vote, alongside the MPC's accompanying minutes, boosted expectations for a cut in the coming months, potentially as early as March.

Inflation currently stands at 3.4%, ahead of the BoE's long-term 2% target, following a recent spike in tobacco prices and airfares. However, the BoE still expects the consumer price index to fall back to around target from April, on the back of changes to energy prices, slowing pay growth and easing services inflation.

"The risk from greater inflation persistence has continued to become less pronounced, while some risks to inflation from weaker demand and a loosening labour market remains," it noted.

"On the basis of the current evidence, Bank Rate is likely to be reduced further. Judgements around further policy easing will become a closer call."

Governor Andrew Bailey and chief economist Huw Pill both backed leaving rates on hold at Thursday's meeting.

However, while Pill argued that a "more prolonged period of policy restriction was likely to be warranted", Bailey, along with Catherine Mann, who also voted for no change, had "greater confidence" that this risk would be mitigated by the lower near-term path for inflation.

In a note, George Brown, senior economist at Schroders, said: "Today's rate decision was seen as a foregone conclusion, but the Bank's close vote to hold rates suggests cuts are not a matter of if, but when."