The Bank of England has left interest rates unchanged at 5.25% following this week's lower-than-expected inflation figures.
The bank's Monetary Policy Committee voted by a majority of 5–4 to maintain the bank rate at 5.25%. Four members preferred to increase Bank Rate by 0.25 percentage points, to 5.5%.
It also said the Ƶ economy is now expected to grow at a weaker rate than previously expected amid “subdued” activity linked to the recent rise in borrowing costs.
In the latest MPC meeting, bank staff said they expect Ƶ gross domestic product (GDP) to rise by “only 0.1%” in the third quarter of 2023, after predicting a 0.4% rise in last month’s meeting.
“Although some of this downside news could prove erratic, underlying growth was likely to be weaker than the 0.25% per quarter built into the August projection for the second half of 2023,” the latest meeting minutes said.
Andrew Bailey, governor of the Bank of England, said: “Inflation has fallen a lot in recent months and we think it will continue to do so. That’s welcome news.
“But there is no room for complacency.
“We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that.”
Today's minutes added: "CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation. Services price inflation, however, is projected to remain elevated in the near term, with some potential month-to-month volatility.
"The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the Ƶ monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term.
"Developments in key indicators of inflation persistence have been mixed, with the recent acceleration in the AWE not apparent in other measures of wages and with some downside news on services inflation. There are increasing signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally.
"Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance is restrictive. At this meeting, the Committee voted to maintain Bank Rate at 5.25%."
