The Bank of England (BoE) announced that it left the policy rate unchanged at 5.25% following the September policy meeting. Markets were expecting the BoE to raise the interest rate by 25 basis points to 5.5%.
The Bank had been hiking rates consistently since December 2021 in a bid to rein in inflation, taking its main policy rate from 0.1% to a 15-year high of 5.25% in August.
The British pound dropped 0.7% against the U.S. dollar shortly after the decision.
The BoE’s Monetary Policy Committee (MPC) voted 5-4 in favor of holding the policy rate steady. Governor Bailey, policymakers Broadbent, Dhingra, Pill and Ramsden voted to hold, while Cunliffe, Greene, Haskel and Mann wanted to lift the key rate to 5.5%. The MPC also voted to reduce the stock of gilts by 100 billion GBP in 12 months starting October.
According to Reuters’ calculations, markets price in a 64% chance of the BoE raising the policy rate by 25 bps in November, down from 81% before the rate announcement. Additionally, investors now see a 55% probability that the BoE will lower the policy rate to 5% in September 2024.