LONDON (Reuters) – The Bank of England (BoE) kept interest rates unchanged on Thursday, with its Governor Andrew Bailey stressing the importance of new data confirming the slowdown in inflation.

Six of the nine members of the monetary policy committee voted to keep rates at 5.25%, their highest level in 15 years.

Jonathan Haskel and Catherine Mann voted for a 0.25 percentage point increase, while Swati Dhingra voted for a decrease of the same magnitude. This is the first time since August 2008 that those responsible for monetary policy are so divided.

“We are waiting for more data confirming that inflation has slowed to 2% before cutting rates,” said BoE Governor Andrew Bailey, stressing that he saw inflation moving “in the right direction”.

Economists polled by Reuters expected one vote to increase and eight votes to maintain.

The BoE did not repeat its warning that “further tightening” would be needed if persistent inflationary pressure emerged.

Instead, the BoE said it would “review the length of time the policy rate should be maintained at its current level.”

The pound and UK government bond yields rebounded slightly following the BoE announcement.

“The balance is slowly tipping in favor of a rate cut, but the BoE cannot risk easing monetary policy, then having to tighten it again if inflation rebounds,” said Ian Stewart, economist in head at Deloitte.

Andrew Bailey stressed the BoE’s caution, and that a drop in inflation to its 2% target would not mean its job would be “done”.

“We need more evidence that inflation is falling toward target and will stay there before we can lower interest rates,” he said.

FORECAST REVISED DOWN

The BoE reiterated that policy should remain “restrictive for a sufficiently long time”, even as it lowered its inflation forecasts for the coming months.

However, higher wage growth sets Britain apart from its peers putting pressure on long-term inflation dynamics, the BoE said.

Annual consumer price inflation now appears likely to briefly return to 2% in the second quarter of this year, while November projections anticipated a decline in inflation to 2% only in the fourth quarter of 2025.

But medium-term forecasts, based on a much less restrictive rate path than in November, show that inflation will return above 2% in the third quarter of 2024 and will not return to the target before the end of 2026, a year later than the BoE forecast in November.

The BoE also judges that the British economy will have difficulty generating significant economic growth in the coming quarters, despite a slight upward revision of annual growth projections.

The BoE also estimates that the tax cuts announced in November will slightly stimulate economic production in the years to come.

But the central bank maintained its forecast for weak growth in household income.

(Written by David Milliken, Andy Bruce, Suban Abdulla, Corentin Chappron, edited by Kate Entringer and Sophie Louet)

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