Bank holds interest rate as inflation is predicted to fall

The Bank of England has held the interest rate at 3.75 per cent in its first vote of the year, after the rate was cut six times in 18 months.

- KARL MATCHETT BUSINESS AND MONEY EDITOR

Although the result was expected, the nine-person Monetary Policy Committee (MPC) vote turned out to be much closer than anticipated, with a 5-4 result paving the way for cuts if the future economic outlook is positive.

Minutes from the MPC meeting suggested that inflation, wage growth and unemployment were the driving factors in making the decision.

Andrew Bailey, the Bank's governor, said: “We now think that inflation will fall back to around 2 per cent by the spring. That's good news. We need to make sure that inflation stays there, so we've held rates unchanged at 3.75 per cent today. All going well, there should be scope for some further reduction in the Bank rate this year.”

Despite a December uptick, several members of the voting committee think inflation remains on a manageable path, with the outlook described as “welcome”. But their concerns are about wage growth staying higher than required if interest rates come down too soon. The four members who voted to cut this time round “judged that the risk from greater inflation persistence had receded materially”.

Markets had mostly been pricing in two rate cuts during the current calendar year, but few were expecting the first of those to come before the summer. Following yesterday's vote, it has now been brought forward to April.