Bank of England policymakers decided to maintain the record low interest rate and quantitative easing in a split vote and signaled a rate hike over the coming months as inflation remains stubbornly above the target.
Seven members of the Monetary Policy Committee voted to leave the key interest rate unchanged at 0.10 percent, while Dave Ramsden and Michael Saunders sought a 15 basis point rate hike, the bank said in a statement on Thursday.
Ramsden and Saunders said the economic outlook warranted a tightening in the monetary policy stance at this meeting.
Markets expected a 15 basis point rate hike at the meeting after Governor Andrew Bailey recently commented that the bank will have to act on inflation.
Further, the MPC decided to retain the existing stock of corporate bond purchases at GBP 20 billion and the government bond purchases target at GBP 875 billion.
Catherine Mann, Ramsden and Saunders preferred to reduce the target for the stock of UK government bond purchases to GBP 855 billion from GBP 875 billion.
Dissenting members said a decision to tighten policy at this meeting would reduce the risk of medium-term inflation expectations drifting up, which might otherwise ultimately necessitate a more abrupt subsequent tightening in policy and hence a greater adjustment in growth and employment.
The MPC judged that it would be necessary over the coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2 percent target.
Paul Dales, an economist at Capital Economics, said the bank sent a strong signal that it is unlikely to raise rates to the level of 1.00 percent that is fully priced into markets by the end of next year. The economist expects rate to end next year at 0.50 percent.
According to the latest BoE forecast, CPI inflation will rise to 4.5 percent in November and remain around that level through the winter, accounted for by further increases in core goods and food price inflation.
Inflation is expected to peak at around 5 percent in April 2022, materially higher than expected in the August Report.
Price growth is projected to fall back materially from the second half of next year as supply disruption eases, global demand rebalances and energy prices stop rising.
Overall, GDP was expected to have grown by around 1.5 percent in the third quarter of this year, and to expand by 1 percent in the fourth quarter in the November Report projections, around half of the rates envisaged in the August Report.
As a result, GDP was expected to remain below its pre-Covid level until the first quarter of 2022.
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