The Bank of England left its main interest rate unchanged at 4.75% on Thursday, but policymakers were more divided over the need for cuts to tackle a slowing economy.
Three of the nine members of the British central bank’s Monetary Policy Committee – deputy chairman Dave Ramsden and members Swati Dhingra and Alan Taylor – voted for a 0.25 percentage point cut in the rate to 4.5%.
Economists consulted by Reuters expected only one member of the committee to vote in favor of the cut.
However, Bank of England Governor Andrew Bailey said the central bank needs to maintain its existing “gradual approach” to reducing interest rates.
“With increasing uncertainty in the economy, we cannot commit to when or by how much we will reduce interest rates next year,” he said.
Last week, economists polled by Reuters predicted the Bank of England would cut interest rates four times next year, but financial markets have sharply lowered their expectations in response to faster-than-expected wage growth and only see up to two cuts.
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The British central bank has been less willing to cut interest rates than the Federal Reserve or the European Central Bank, reducing rates by just 0.5 percentage points this year.
Official data on Wednesday showed that British consumer price inflation rose to 2.6% in November – the highest in the G7 by a small margin, and slightly higher than the Bank of England itself had forecast for the month. past.
“Inflation is expected to continue to rise slightly in the near term,” the central bank said.
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Meanwhile, the central bank also cut its growth forecast for the final quarter of this year to zero, compared to the 0.3% forecast made just six weeks ago.
The British economy contracted in September and October – the first consecutive monthly drop in output since 2020 – according to official data last week and business confidence has fallen since Finance Minister Rachel Reeves announced a £25 billion tax rise. of pounds to employers in its October 30 budget.
Monetary Policy Committee members who advocated holding interest rates said it remains “particularly uncertain” whether these higher costs will be passed on to consumers through higher prices or lead to job losses and slower wage growth. .
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“Recent developments have reinforced the case for a gradual approach to lifting monetary policy restrictions, avoiding any commitment to change policy at a specific meeting,” they said.
The three members who voted in favor of the cut said that a “too restrictive” stance could drive inflation far below the 2% target in the medium term and create an excessively large amount of spare capacity in the economy.
