BoE Keeps Rate Steady, Maintains Pace Of Gilt Stock Reduction

(RTTNews) - The Bank of England decided on Thursday to maintain its benchmark rate and continue with trimming its government debt holdings, as well as adopted a cautious approach despite the US Federal Reserve slashing the policy rate by a half percentage points a day earlier.

The BoE Monetary Policy Committee, headed by Governor Andrew Bailey, voted by a majority of 8-1 to hold the Bank Rate at 5.00 percent. The decision was in line with expectations as markets expected a cut only next month.

At the August meeting, the MPC had voted in a tight 5-4 vote to cut the rate by a quarter point from a 16-year high of 5.25 percent.

This month, policymaker Swati Dhingra alone voted to reduce the rate by another 0.25 percentage points to 4.75 percent.

In a unanimous vote, the MPC decided to reduce the stock of UK government bond purchases by GBP 100 billion over the next twelve months, to a total of GBP 558 billion.

Policymakers said they intended to use the bank rate as the active policy tool when adjusting the stance of monetary policy.

"In the absence of material developments, a gradual approach to removing policy restraint remains appropriate," the BoE said. The UK central bank repeated that the monetary policy will need to continue to remain restrictive for sufficiently long.

The BoE announcement came after the US Federal Reserve slashed its benchmark rate by a more-than-expected half a percentage point on Wednesday, which was the first reduction in over four years.

Although the tone from UK policymakers was still much more cautious than their US counterparts, the BoE will be more confident in the inflation outlook and will be content with accelerating the pace of cuts, ING economist James Smith said.

Capital Economics' economist Paul Dales said the bank is expected to cut the rate only by 25 basis points this year, at its next meeting in November.

However, the pace of reductions may quicken next year with rates eventually falling to 3.00 percent rather than to the 3.25-3.50 percent priced into markets, Dales added.

Bank staff forecast the UK economy to grow 0.3 percent in the third quarter, which was weaker than the 0.4 percent estimated in August. Inflation is expected to increase to around 2.5 percent towards the end of this year as declines in energy prices last year fell out of the annual comparison.