The Bank of England held interest rates steady on Thursday, defying many investors’ expectations that it would become the first major central bank to hike rates following the coronavirus pandemic. The Bank’s Monetary Policy Committee voted 7 to 2 to keep the Bank Rate unchanged at its historic low of 0.1%, and 6 to 3 in favor of continuing the existing program of U.K. government bond purchases. The committee voted unanimously to maintain its £20 billion stock of those bond purchases, keeping the total asset purchase program at £895 billion. Markets had been uncertain as to whether the Bank would move toward monetary policy normalization on Thursday or at its next meeting in mid-December, but analysts broadly agreed that a hike is due before the end of the year. Sterling fell sharply following the announcement. It was last seen down by around 0.95% against the dollar at 1.3551, while the euro gained 0.4% on the pound. The Bank of England has been monitoring a confluence of crucial data points as inflation remains persistently high while economic growth moderates and labor conditions tighten. British inflation slowed unexpectedly in September, rising 3.1% in annual terms, but analysts expect this to be a brief respite for consumers. August’s 3.2% annual climb was the largest increase since records began in 1997, and vastly exceeded the Bank’s 2% target. The Bank now expects inflation to rise further to around 5% in the spring of 2022 before falling back toward its 2% target by late 2023, as the impact of higher oil and gas prices fades and demand for goods moderates.
