The Bank of England held its key interest rate at 4%. This move, while widely anticipated following yesterday’s stubbornly high inflation data, extinguished any lingering hopes for a more daring intervention to stimulate the economy.
The decision, passed unanimously, underscores the Monetary Policy Committee’s (MPC) limited room for manoeuvre in the face of persistent price pressures. Governor Andrew Bailey’s recent warning of “gradual and careful” steps toward rate reductions sets a clear and cautious tone for the months ahead.
While the headline rate decision was unsurprising, the more compelling development was the Bank’s quiet pivot on quantitative tightening (QT). The pace of Gilt sales will be slowed from £100 billion to £70 billion. This subtle but significant adjustment is designed to support Gilt yields, which had recently climbed to a high of 5.75% – a move which will come as a timely boon for the government, easing the path for new Gilt issuances as the Chancellor prepares to address the UK’s fiscal deficit in the upcoming Budget.
The Bank’s measured approach reflects the difficult balancing act it faces. While its primary mandate is to contain inflation, the MPC cannot ignore the backdrop of a weakening labour market and slowing economic growth. The need to shore up public finances is pressing, but without sustainable growth to generate income, the path to funding the important aspects of public well-being which the government plans to implement will be a considerable challenge.
Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner
