The Bank of England's MPC paused its 14-hike streak due to Middle East events and looming inflation, suggesting possible future tightening.
MPC halts 14-consecutive rate hike run.
UK GDP growth stagnates; inflation at 6.7%.
Global events sway UK’s economic outlook.
Interest Rates Decision
The Bank of England’s Monetary Policy Committee (MPC) made a significant move, halting its streak of 14 consecutive rate hikes. By a 6-3 vote, the committee chose to keep the interest rates unchanged at 5.25%, a decision influenced by their assessment of the economic landscape and its foreseeable effect on inflation.
Economic and Inflationary Landscape
Recent data paint a picture of a UK economy losing steam. GDP growth recorded a standstill in Q3 2023 and forecasts suggest a paltry 0.1% rise in Q4. Concurrently, the labor market appears to be loosening its grip. Employment growth is on a downward trend, with certain sectors still grappling with skills shortages. On the inflation front, the rate hovers at an elevated 6.7%, substantially overshooting the MPC’s 2% target. However, a silver lining appears as projections anticipate a drastic decline, aligning it closer to the target by 2025’s end.
Global Influences and Risks
Several external factors are casting shadows on the UK’s economic landscape. The tumultuous events in the Middle East have precipitated a surge in oil futures, stoking global inflationary fires. Additionally, a notable rise in long-term government bond yields across major economies signals a recalibration in global investor sentiment. The MPC is candid about the potential pitfalls in their projections, especially concerning inflation. Chief among the concerns are lingering second-round effects on domestic prices and wages, combined with potential energy price shocks on the world stage.
Outlook on Future Monetary Policy
In the midst of these challenges, the MPC reiterates its stance that the prevailing monetary policy is tight, especially in light of the Bank Rate’s significant elevation. With an unwavering commitment to steer inflation back to the 2% mark over the medium term, the committee hints that if persistent inflationary pressures arise, they might consider further tightening.
Conclusion and Market Implications
The MPC’s decision to hold the rate resonates with the broader narrative of a decelerating economy juxtaposed with stubborn inflationary pressures. While a cautious optimism surrounds the prospect of inflation rates nearing the target in coming years, the erratic dance of global events and domestic economic trends could sway future MPC decisions. For traders and investors, keeping a keen eye on unfolding economic data and Bank communications will be pivotal in anticipating upcoming policy shifts.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.