Bank: CPI inflation is judged to have peaked<\/p>\n
Newsflash: The Bank of England<\/a> believes the recent rise in UK inflation is over.<\/p>\n Announcing today\u2019s decision to leave interest rates on hold<\/a>, the Bank declares \u201cCPI inflation is judged to have peaked.\u201d<\/p>\n UK inflation has been recorded at 3.8% in July, August and September<\/a> \u2013 and the Bank is expressing confidence that the process of \u2018disinflation\u2019 isn\u2019t over.<\/p>\n Its latest Monetary Policy Report, just released, predicts that inflation is likely to fall to close to 3% early next year before gradually returning towards to the 2% target over the subsequent year.<\/p>\n It says:<\/p>\n Progress on underlying disinflation continues, supported by the still restrictive stance of monetary policy. This is reflected in an easing of pay growth and services price inflation. Underlying disinflation is being underpinned by subdued economic growth and building slack in the labour market.<\/p>\n The Bank had previously forecast that inflation would peak at 4% in September.<\/p>\n Share<\/a><\/p>\n Updated at\u00a007.16 EST<\/p>\n Key events<\/p>\n Show key events only<\/p>\n Please turn on JavaScript to use this feature<\/p>\n Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin, agrees that governor Andrew Bailey\u2019s vote will be \u2018crucial\u2019 in deciding whether the Bank of England<\/a> cuts interest rates in December:<\/p>\n With widespread expectation of potential tax hikes in the Autumn Budget, there is a plausible case for even weaker demand hence pushing inflation lower from 2026. The difficulty is that the BoE cannot consider hypothetical impact in its assessment prior to knowing the exact measures in the Budget.<\/p>\n We will, therefore, only get more clarity post Budget and Governor Bailey\u2019s vote will be crucial. Overall, markets believe the BoE has opened the door for a rate cut in December and has priced in that happening.\u201d<\/p>\n Share<\/a>Bank of England rate cut: what the experts say<\/p>\n Reaction to today\u2019s UK interest rate decision (no change) has been pouring in.<\/p>\n Paul Dales, chief UK economist at Capital Economics, believes today\u2019s decision to hold rates at 4% is a pause in the downward trend in interest rates rather than the end.<\/p>\n Dales says:<\/p>\n With a tightening in fiscal policy in the Budget on 26th November on the cards, the Bank will probably resume cutting rates in the coming months. We still think rates will be cut to 3.00% next year rather than to the 3.50% priced into the financial markets.<\/p>\n Kathleen Brooks, research director at XTB, says UK borrowers could get an early Christmas present from the Bank of England<\/a> in December:<\/p>\n The Bank of England voted to keep rates on hold today, but there could be rate cuts coming as soon as next month. The most interesting part of this meeting was the vote split, which was 5-4 in favour of remaining on hold. Also, for the first time we got detailed reasons why each member voted as they did.<\/p>\n The immediate market reaction to the decision was a rush to reprice December rate cut expectations, and, surprisingly, the pound is higher vs. the USD and the EUR. The interest rate swaps market is now pricing in a 65% chance of a rate cut next month, this is up from 29% at the start of this week, there is also a 52% chance of a cut in February.<\/p>\n James Smith, ING\u2019s developed markets economist for the UK, is more convinced that a rate cut is coming in December, adding:<\/p>\n Everything hinges on Governor Andrew Bailey\u2019s vote \u2013 and his comments make it abundantly clear that he is siding with the doves.<\/p>\n Matt Swannell, chief economic advisor to the EY ITEM Club, says the MPC was \u201cunusually divided\u201d, leading to the narrow 5-4 vote, adding:<\/p>\n Today\u2019s decision clearly opens the door to a December cut, but that remains contingent on the incoming data. If there are further signs of falling inflationary pressures in the coming months and if the bulk of the tax rises expected at the Autumn Budget are introduced almost immediately, then there might be a slim majority on the Committee in favour of a Christmas cut. Any future cuts are likely to come at a relatively gradual pace as the Committee continues to remain wary of lingering inflationary pressures.\u201d<\/p>\n Share<\/a>US job cuts in October hit 22-year high as firms embrace AI<\/p>\n Away from the Bank of England\u2019s interest rate decision, we have new signs that artificial intelligence is hitting the jobs market.<\/p>\n U.S.-based employers announced 153,074 job cuts in October, up 175% from the 55,597 cuts announced in October 2024, outplacement firm Challenger, Gray & Christmas has reported. That\u2019s the highest for the month since October 2003.<\/p>\n Photograph: Challenger, Gray & Christmas.<\/p>\n Andy Challenger, chief revenue officer for Challenger, Gray & Christmas, says some companies are reducing headcount after adding staff during the Covid-19 pandemic, while others are halting hiring as they adopt AI.<\/p>\n Challenger explains:<\/p>\n \u201cOctober\u2019s pace of job cutting was much higher than average for the month. Some industries are correcting after the hiring boom of the pandemic, but this comes as AI adoption, softening consumer and corporate spending, and rising costs drive belt-tightening and hiring freezes.<\/p>\n Those laid off now are finding it harder to quickly secure new roles, which could further loosen the labor market.<\/p>\n So far this year, US employers have announced 1,099,500 job cuts, an increase of 65% from the 664,839 announced in the first ten months of last year. That\u2019s the highest level since 2020.<\/p>\n Share<\/a><\/p>\n John-Paul Ford Rojas of the Daily Mail says people are worried that income tax will go up in the budget \u2013 would that give the Bank any impetus to cutting interest rates in December?<\/p>\n Andrew Bailey sticks to his guns, repeating that the Bank will assess the budget measures when they are announced, rather than speculating about fiscal policy.<\/p>\n Share<\/a><\/p>\n Szu Ping Chan of the Telegraph asks whether government action in the last year has helped, or hindered, the fight against inflation.<\/p>\n Andrew Bailey resists any temptation to criticise the Treasury. He points out that the government has many public policy objectives. For example, that can mean allowing water bills to rise to fund the clean-up of the water industry \u2013 it\u2019s not for the Bank to oppose that (but it can point out the impact on inflation).<\/p>\n Share<\/a><\/p>\n My colleague Phillip Inman looks forward, asking why the Bank doesn\u2019t expect to cut rates more quickly in 2026. The Bank\u2019s scenarios show growth slowing and unempoyment rising in 2026, so why does they show restrictive interest rates?<\/p>\n Andrew Bailey replies that the degree of restrictiveness is easing, and the Bank will continue to assess how restrictive the cost of borrowing is.<\/p>\n Share<\/a><\/p>\n Joel Hills of ITV News asks why the Bank doesn\u2019t support strong pay growth.<\/p>\n Andrew Bailey replies that pay growth is an important determinent of inflation, while inflation expectations help to determine wage negotiations.<\/p>\n We have been though a period where pay settlements were well above where our models suggested they would be.<\/p>\n Pay settlements are coming down, he adds, and they will be an \u201cimportant part of our considerations\u201d.<\/p>\n Share<\/a><\/p>\n Phil Aldrick of Bloomberg asks if the Bank would welcome action by Rachel Reeves to slow increases in regulated prices.<\/p>\n Deputy governor Clare Lombardelli says that the Bank thinks around 0.4% of the current 3.8% inflation rate is due to those administered prices.<\/p>\n Share<\/a>Bailey: I want more evidence that inflation has peaked before voting to cut rates<\/p>\n Helia Ebrahimi of Channel 4 asks how Andrew Bailey can justify leaving interest rates on hold when the Bank believes inflation has peaked.<\/p>\n The governor (who was effectively the swing voter in today\u2019s 5-4 split<\/a>) replies that he wants to see more evidence that inflation has passed its peak.<\/p>\n Deputy governor Dave Ramsden (who did vote for a cut) provides some support for Bailey from the governor\u2019s left flank, pointing out that inflation is still 3.8% \u2013 a long way above the Bank\u2019s 2% target.<\/p>\n Share<\/a>Bailey: There could be an AI bubble<\/p>\n Asked about the risks of an artificial intelligence bubble in the financial markets, Andrew Bailey says it\u2019s a danger, but also suggests AI could have significant benefits even if valuations are too high.<\/p>\n The BoE governor tells reporters:<\/p>\n \u201cThe markets could overprice the returns, but the returns could still be substantial.<\/p>\n So we\u2019ll see, but we are watching the … implications for financial stability.\u201d<\/p>\n \u201cIt is, of course, perfectly possible and perfectly consistent that AI could be the next big mover in terms of productivity … My own view personally is, I think, more likely than not it probably is.<\/p>\n \u201cBut we\u2019ve still got quite a way to go to actually sort of see that demonstrated. At the same time, we could have a bubble, because obviously the markets are pricing the future stream of returns from this, and that\u2019s uncertain. And so, you know, those two things are not inconsistent.\u201d<\/p>\n Share<\/a><\/p>\n There\u2019s no escape from the budget today!<\/p>\n Dharshini David of the BBC asks if the recent increase in national insurance rates, and the minimum wage, made the Bank more hesistant to cut rates.<\/p>\n Andrew Bailey says the Bank wanted to see how businesses responded to these higher costs.<\/p>\n He says some firms have cut back on hiring, while others have raised salaries by less.<\/p>\n Share<\/a><\/p>\n Sam Fleming of the Financial Times reminds Andrew Bailey that he has suggested he agrees with current interest rate market pricing* \u2013 does that mean 3.5% is the likely terminal rate for the Bank of England<\/a> \u2013 what is the range of views on this on the committee?<\/p>\n (Terminal rate is the point in an easing cycle when a central bank stops cutting interest rates).<\/p>\n Governor Bailey replies that the market curve gives a \u2018sensible path\u2019 for interest rates, which isn\u2019t always the case.<\/p>\n On the terminal rate issue, he says the committee are split in two camps \u2013 some policymakers do have a prediction, and others (including Bailey) who don\u2019t think there is enough confidence in any estimate of an equilibrium level of rates.<\/p>\n * \u2013 in the minutes, Bailey says \u201cCurrent market pricing is close to the path suggested by a forward-looking Taylor rule, which is a fair description of my position at present.\u201d<\/p>\n Share<\/a><\/p>\n Mehreen Khan of The Times asks Bailey about Rachel Reeves\u2019s pre-budget speech on Tuesday, in which the chancellor said she wanted to help the Bank to cut interest rates by fighting inflation. Was the governor not convinced?<\/p>\n Andrew Bailey replies that the Bank is not passing any judgement on what the chancellor said this week, it will wait to hear the budget.<\/p>\n Share<\/a><\/p>\n Onto questions\u2026.<\/p>\n Ed Conway of Sky News asks what impact the impending budget had on today\u2019s interest rate decision.<\/p>\n Andrew Bailey says the Bank only knows one thing for certain \u2013 there\u2019ll be a budget on 26 November.<\/p>\n He adds that the Bank takes its decisions based on known government policy; it won\u2019t speculate about what might be in the budget.<\/p>\n Share<\/a><\/p>\n It appears that the Bank of England<\/a> is keen to hear Rachel Reeves\u2019s budget, in just under three weeks, before deciding it is safe to cut interest rates.<\/p>\n Governor Andrew Bailey says the Bank will receive more data on inflation and cost pressures in the run-up to its next MPC meeting in December.<\/p>\n The bank will also be able to analyse how this year\u2019s budget will influence the economy and the outlook for inflation, he adds.<\/p>\n Share<\/a><\/p>\n Worryingly, the governor of the Bank of England<\/a> then points to signs that the economy is weakening.<\/p>\n Andrew Bailey points out that household consumption growth has been weak, with the Bank only expecting a limited recovery in the near term.<\/p>\n A chart showing UK consumption Photograph: Bank of EnglandShare<\/a><\/p>\n Andrew Bailey then presents the press with several charts to show why the Bank of England<\/a> believes disinflation will continue, and why it expects wage growth to slow.<\/p>\n