• Prior 1.75%
  • Bank rate vote 9-0* vs 9-0 expected (*Haskel, Mann, Ramsden voted for 75 bps, Dhingra voted for 25 bps)
  • Sterling has depreciated materially since August
  • Uncertainty around the outlook for UK retail energy prices has fallen after government's energy support plan
  • Consumer spending is likely to have peaked in this quarter
  • Peak inflation is now likely to be lower than projected in August, at just under 11% in October
  • Policy is not on a pre-set path
  • Should the outlook suggest more persistent inflationary pressures, including from stronger demand, BOE will respond forcefully, as necessary
  • Full statement

There's a bit of give and take in the latest policy decision by the BOE here. The split in votes obviously don't help to give markets a sense of confidence on their resolve to tighten aggressively. Add that to the fact that market pricing had considered a 75 bps rate hike but we only got 50 bps, as per what economists expected.

But the good news comes from the fact that the BOE is offering up a more optimistic outlook on inflation. As for economic activity, they see Q3 GDP as being -0.1% q/q and that will infer a technical recession in the UK. But on the balance of things, the brighter inflation outlook perhaps matters more as they view peak inflation to be lower now.

Besides that, there is a subtle change to the forward guidance, which I would perceive to be offering them flexibility to act less aggressively i.e. move back to 25 bps rate hikes. In August, they noted that:

"The Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response."

Today, the statement reads:

"Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee will respond forcefully, as necessary."

It ties to their peak inflation view coming lower and while it's no major change in policy stance, it is a subtle one as the words should and suggest do give them some leeway to work with moving forward.