Bank holds off from rate rise, but says hike due ‘in months’ to cool inflation

Minutes of the Bank’s latest decision showed members of the nine-strong Monetary Policy Committee voted seven to two in favour of keeping rates unchanged at 0.1%.

Two members were outvoted in calling for a rise to 0.25%.

Financial markets had expected the Bank to raise rates as soon as this month on the back of soaring energy and fuel costs and recent comments from Bank governor Andrew Bailey that policymakers would have to “act” to bring inflation under control.

The pound fell sharply, having risen recently on expectations of a rise, down more than 1% against the US dollar and 0.8% against the euro.

But the Bank said a rate increase was on the way as it warned higher energy prices would see inflation leap from 3.1% to 4.5% by November and hit around 5% next April, the highest level for a decade.

Governor Andrew Bailey said: “The Committee judges that… it will be necessary over coming months to increase Bank Rate in order to return CPI (Consumer Prices Index) inflation sustainably to the 2% target.”

The minutes showed the Bank held its nerve on rates as most members wanted confirmation first from upcoming official figures that unemployment has not jumped markedly higher following the end of furlough support.

Mr Bailey denied he was proving to be an “unreliable boyfriend”, a tag first used to describe his predecessor Mark Carney, by failing to raise rates after implying they would go up.

He said the decision was a “very close call”.

“We are in a situation where the calls are close and quite hard.”

But he denied the Bank had signalled a move this month.

He said: “It’s not ‘unreliable boyfriend’.

“We didn’t say we would act at any particular meeting.”

The decision also came amid policymaker concerns over signs the UK economy is flagging as supply chain woes hold back growth, with consumer spending also proving more muted than expected.

The Bank slashed its growth forecast for the third quarter to 1.5% from 2.1% predicted in September.

This would mark a steep drop from the 5.5% growth notched up between April and June.

It forecast growth would ease back further to 1% in the fourth quarter, leaving overall expansion at 7% in 2021 against the 7.25% predicted in August.

The report shows it now expects the UK economy to return to its pre-Covid level by the first quarter of 2022, against a previous prediction for a recovery by the year end.

“Growth is somewhat restrained by disruption in supply chains,” the Bank said.

“Alongside the rapid pace at which global demand for goods has risen, this has led to supply bottlenecks in certain sectors.

“There has also been some signs of weaker UK consumption demand.”

The report outlines a gloomy eight months for households from rising prices and Mr Bailey admitted the Bank “can do little to affect inflation in the near term”.

But he insisted spiking inflation would be “temporary” and would “fall back materially from the second half of next year”.

Supply chain problems that have been impacting a raft of sectors since the early summer are also set to last until the end of next year, longer than the Bank first expected.

But that too is set to fade from the end of 2022.

Economist Martin Beck at the EY Item Club said a rate rise still may not come until next year.

He said: “While a rate rise in the MPC’s next meeting in December is a possibility, the EY Item Club thinks February 2022 presents a more likely date for rate increase.

“At that point, data on the employment impact of the furlough scheme’s end will be available.”