Bank of England governor says ‘no room for complacency’ after leaving interest rates on hold – as it happened

Last modified: 03: 12 PM GMT+0

BoE policymakers were split 5-4 on interest rates this month, with a narrow majority voting to leave Bank rate at 5.25%

Afternoon summary

Time to recap….

The Bank of England governor, Andrew Bailey, has said it would be “very, very premature” for policymakers to start talking about rate cuts, after the central bank left borrowing costs unchanged today.

Bailey said the impact of the Bank’s 14 rate rises since December 2021 were now “coming through”, with inflation falling in August.

Speaking to broadcasters, he added:

Our job is to get inflation down, we’ve got a big job to do, we’ve got quite a long way to go yet. It’s encouraging. But I’m afraid we can’t be complacent, and of course we will watch the evidence very carefully as we always do.

In a video clip released by the Bank, Bailey insisted there was “no room for complacancy”.

Andrew Bailey explains today’s decision on interest rates. Inflation has fallen a lot in recent months, and we think it will continue to do so. That’s welcome news. But there is no room for complacency.

— Bank of England (@bankofengland) September 21, 2023

The Bank surprised some in the City by resisting raising interest rates for the 15th time in a row today, instead leaving base rate at 5.25%.

The vote was very close, though, with four policymakers pushing for a rise, but being narrowly outvoted by the other five.

Exposing a split within the Bank’s most senior ranks, four members of the MPC, including the outgoing deputy governor Jon Cunliffe, were outvoted in pushing for a quarter-point rise. Cunliffe joined three of the independent economists on the nine-strong panel advocating for tougher action to bring inflation back to more sustainable levels.

Here’s the full story:

And analysis:

Some City economists believe UK interest rates are now at their peak, and will remain at 5.25% until the Bank starts to cut next year.

The pound fell to a six-month low below $1.23 against the dollar after the decision was announced.

Martin Lewis, the consumer champion, warned that savings rates may start to fall quickly.

Here’s the rest of today’s news:


— Breaking Market News (@financialjuice) September 21, 2023

Analysis: Judging by the state of the UK economy, the Bank is done with interest rate hikes

The Bank’s decision today was good news for homeowners who were braced for a rise in interest rates to 5.5%, my colleague Phillip Inman writes.

Those with mortgages that must be refinanced over the next year will be relieved to know the central bank has chosen to wait and see before making another move.

Rishi Sunak will also be cheered by the outcome, which could put a lid on the pain for consumers, and especially businesses that have spent recent months calling for a halt to the rate hikes to prevent hundreds of thousands of firms going bust.

The prime minister already feels he is on course to hit his target of halving inflation this year from its 10.7% average in the last quarter of 2022. An interest rate freeze is a bonus.

More here:

Martin Lewis issues ‘urgent savers warning’ as Bank of England base rate is held

Consumer champion Martin Lewis has warned that savers may see some rates being shaved down after the Bank of England paused its run of base rate rises today.

Writing on X, he says:

“The Bank of England….voted to maintain interest rates at 5.25% – not increase as many predicted. It’s therefore possible fixed-rate savings may shave down their rates at speed (as they’re based on longer term predictions of interest rates).”

Lewis recommends opening a fix-rate savings account today, if you were considering one, but not to fund it immediately, while you see how rates change…

The Bank of England minutes ago voted to maintain interest rates at 5.25% - not increase as many predicted.

It's therefore possible fixed rate savings may shave down their rates at speed (as they're based on longer term predictions of interest…

— Martin Lewis (@MartinSLewis) September 21, 2023

There’s a lot of interest today in the tightness of today’s interest rate decision.

Katrin Löhken, economist at asset manager DWS, says the 5-4 split reflects sharply divergent views on economic and price dynamics in the United Kingdom.

Löhken says:

Among the hawks were outvoted today, concerns about second-round effects still predominate. With average weekly earnings growth at 8.5% year-on-year and inflation well above US or euro area levels, this does not seem entirely unjustified.

This time, however, the BoE emphasizes in its statement that other wage indicators are rising more moderately, so that official weekly earnings may overstate the momentum somewhat. In any case, the current level of key interest rates is already restrictive. Last but not least, inflation eased more than expected in August. The majority of the Monetary Policy Committee has interpreted this as the beginning of a decreasing price trend.

From here, the BoE is now likely to wait and see if this assessment is correct, Löhken adds:

Its primary remit is and remains the fight against inflation. It underlines this with the formulation that monetary policy must now remain “sufficiently restrictive for sufficiently long”. If, contrary to expectations, price pressures intensify again in the coming months, the Bank will have to tighten again. But if wages and prices move in line with expectations, a plateau should now have been reached, which the British central bank now wants to let work through.


Andrew Bailey: The medicine is working (but it's premature to consider rate cuts)

Bank fo England governor Andrew Bailey has given an interview to broadcasters.

He begins by saying yesterday’s fall in inflation, from 6.8% to 6.7%, was “very welcome news”, and a sign that price pressures were easing by more than the bank expected.

Bailey adds:

Of course, the job’s not done yet. We can’t be complacent about this.

Our job is to get inflation back down to the 2% target and sustain it there.

So the job isn’t done yet, and we’ll keep on doing the job.

Q: Is this a peak for interest rates? Will the next move be down?

Bailey won’t make any predictions, but says it’s too early to consider rate cuts:

I can tell you that we have not had any discussion on the Monetary Policy Committee about reducing rates, because that would be very, very premature.

Our job is to get inflation down, we’ve got a big job to do, we’ve got quite a long way to go yet. It’s encouraging. But I’m afraid we can’t be complacent, and of course we will watch the evidence very carefully as we always do.

Q: Is the medicine now working?

Yes, Bailey replies – the Bank’s restrictive monetary policy is reducing inflationary pressures.

He says:

I think the effects of what we have done over the last, not far off two years now, are coming through.

Q: Are you worried about what’s happening in the oil markets, with fuel prices [going up]? The IMF have done a report warning of premature celebration, which happened in the 70s oil shock?

Bailey insists there are no premature celebrations at the BoE, as “we have a long way to go”.

He says Bank staff are watching the oil market very carefully.

Q: We’re a year on from the mini-budget. Liz Truss said this week the Bank was too powerful at the time…..

Bailey says it’s not the Bank’s job to be judgemental. Truss was chosen as prime minister, and “we all wanted her to do the job”.

He says the Bank had to step in to tackle a particular financial stability problem, and it pulled out once the issue had been addressed.

[That problem related to pension funds who faced losses through their LDI strategies once government bond prices fell after the mini-budget].

Bailey insists he has no desire to get in the way of what governments do, as that would be wrong.

Q: Do we still have a shadow from those mini-budget conditions?

No, we are back to much more normal conditions now, Bailey says.

Berenberg: Bank has made the correct policy decision

By pausing today, the Bank of England has decreased the risk of overtightening policy and tipping the UK into “a needless recession over winter”, says Kallum Pickering, senior economist at Berenberg Bank.

He adds:

It is the correct policy decision, in our view.

Governor Andrew Bailey cast the deciding vote in favour of a hold.

On 1 September we had highlighted that the risk for this meeting was skewed towards a hold and hence the outcome is no big surprise. The deciding factor seems to have been the big downside surprise to August inflation – and especially to measures of domestically generated inflation.

Pickering predicts that the BoE wil keep bank rate unchanged at 5.25% through the last three months of 2023 and the first quarter of 2024 before the first cut comes in Q2 2024.

For end-2024 we project a 4.0% bank rate – implying 125bp of total cuts next year.

Philip Shaw of Investec says the Bank of England has put more weight than usual on the latest PMI (purchasing manager index) surveys, which track the health of the economy.

August’s PMIs showed a worrying slowdown, putting policymakers on alert for a possible recession. The BoE also had a sneak peak at September’s data, due out at 9.30am tomorrow.

Shaw says:

  • The MPC maintained the level of the Bank rate at 5.25% ending a run of 14 consecutive increases. A 15th straight hike seemed to be a high probability event until yesterday’s publication of August’s CPI report which showed headline inflation surprisingly edging back to 6.7%, rather than rise to 7.1%.

  • Since then we had been of the view, on balance, that today’s hike would still go ahead, but argued that the decision would be finely balanced, with the committee remaining concerned about the continuing robustness of private sector regular pay growth, recorded at 8.1% (3m yoy) in July. Indeed the vote was very close, at 5-4. The dissenting four members (Jon Cunliffe, Megan Greene, Jonathan Haskel and Catherine L Mann) called for a 25bp rise.

  • What seems to have sealed the argument to keep rates on hold was that the majority appeared to place less weight on the strong ONS labour pay data. The committee suggested that the latest path was ‘difficult to reconcile’ with other measures that were more stable at more modest levels. The relatively long set of minutes also appeared to convey greater concern about the weakness of the economy both from private sector surveys and the BoE’s own agents. In fact they made 13 references to PMIs compared with just three in August.

Full story: Bank of England keeps interest rates on hold at 5.25% in narrow vote

The Bank of England has kept interest rates on hold for the first time in almost two years in a knife-edge decision underscoring the risks to the economy, leaving borrowing costs at 5.25% and warning that rates will remain high to tackle inflation.

In a critical week for the economy, the Bank’s monetary policy committee (MPC) voted by a narrow majority to halt the cycle of rate hikes – 14 consecutive rises since the end of 2021 – after figures on Wednesday showed a surprise fall in inflation in August.

Exposing a split within the Bank’s most senior ranks, four members of the MPC, including the outgoing deputy governor Jon Cunliffe, were outvoted in pushing for a quarter-point rise. Cunliffe joined three of the independent economists on the nine-strong panel advocating for tougher action to bring inflation back to more sustainable levels.

The Bank’s governor, Andrew Bailey, who voted for a hold, said: “Inflation has fallen a lot in recent months, and we think it will continue to do so. That’s welcome news. But there is no room for complacency. We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that.”

Financial markets had been finely balanced in the run-up to the decision, with the City pricing in a near-even chance of a quarter-point increase. Many economists expect the Bank to keep rates unchanged for a prolonged period to prevent persistent inflationary pressures becoming embedded in the economy.

Rupert Murdoch stepping down as Chairman of Fox and News Corp

In other business news, Rupert Murdoch is reportedly retiring from the Fox and News Corporation boards.

The move will make Murdoch’s son, Lachlan, the sole executive in charge of the global media empire which was created out of a small local newspaper concern in Australia starting 70 years ago.

The elder Murdoch will become chairman emeritus of the two companies, according to reports.

CNBC has more details:

“Our companies are in robust health, as am I,” the elder Murdoch said in a note to employees.

“We have every reason to be optimistic about the coming years – I certainly am, and plan to be here to participate in them. But the battle for the freedom of speech and, ultimately, the freedom of thought, has never been more intense.”

🚨#BREAKING: Rupert Murdoch stepping down
"Following a career that began nearly 70 years ago in 1954, Fox Corp. and News Corp. announced today that Rupert Murdoch is stepping down as chairman of each board" effective in mid-November.
— Will be appointed chair emeritus of both

— Sara Fischer (@sarafischer) September 21, 2023

The move comes months after Murdoch called off a proposed merger of Fox and News Corp.

Murdoch was forced to scrap a decade-long ambition to reunify News Corp – home to the Times, Sun, Wall Street Journal and the Australian, with Fox, broadcaster of Fox News and crown jewel NFL games – after opposition from investors and youngest son James.

Rachel Reeves MP, Shadow Chancellor of the Exchequer, has pointed out that families whose fixed-rate mortgage deal are ending still face a surge in borrowing costs.

Reeves says:

“Britain has been left worse off after thirteen years of economic chaos and instability under the Conservatives.

“Households coming off fixed rate mortgages will be paying an average of £220 more a month and inflation remains high because of the Conservatives’ disastrous mini-budget.

“Labour’s plan for the economy is about returning stability and boosting growth so we can cut household bills, create better paid jobs and make working people in all parts of the country better off.”

Chancellor of the Exchequer, Jeremy Hunt, has commented on the Bank’s decision, saying:

“We are starting to see the tide turn against high inflation, but we will continue to do what we can to help households struggling with mortgage payments.

Now is the time to see the job through. We are on track to halve inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down.”

Earlier this summer, Hunt pushed the UK banking sector into agreeing to give customers who missed mortgage payments a year of grace before foreclosing, and to protect credit scores of borrowers who change loan terms to ease their financial burden.

The Bank does leave the door open to a future increase in interest rates, in the minutes of this month’s meeting.

It points out that the current monetary policy stance is “restrictive”, given the significant increase in Bank Rate since the start of this tightening cycle in December 2021.

But further tightening could be needed, the Bank says:

Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit.

Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.

Erik Norland, senior economist at CME Group, has dubbed the Bank’s decision a ‘hawkish pause’ – meaning future interest rate rises can’t be ruled out.

Norland explains:

“Last week the ECB opted for a “dovish” hike, raising rates by 25bps while indicating that they were done hiking for a while. Today the BoE appears to have done the opposite, deciding not to raise rates while leaving the door open to further hikes.

This might be viewed as a “hawkish pause”, putting them into a similar stance as the U.S. Federal Reserve.

The BoE’s decision not to move policy in September was likely reinforced by yesterday’s much lower-than-expected core inflation number which came in at 6.2% YoY, down from 6.9% previously. Even so, it’s hard to rule out further hikes if inflation does not continue to moderate.”

Shares in some UK housebuilders are rising today, after the Bank of England left interest rates on hold.

Barratt Development are up 1.6%, Berkeley Group are 1% higher and Taylor Wimpey has gained 0.8%.

If interest rates are now at, or near, their peak, that could help to bring down mortgage costs and encourage buyers back into the housing market. But it all depends how long it takes until the Bank starts cutting borrowing costs.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, explains:

Housebuilders initially lifted in a relief wave, with rays of light appearing at the end of a long dark tunnel.

Persimmon, Berkeley Homes and Taylor Wimpey were among the risers, however some gains have been erased as investors assess the prospect of higher interest rates lingering for longer.

It may mean that the homebuilding landscape will get tougher before it gets better. High inflation and rising interest rates have made mortgage affordability tough for buyers. That’s really weighing down demand at the moment and its unlikely to change any time soon.’’

UK interest rates are at their peak, declares Capital Economics:

They say:

The surprise decision by the Bank of England to leave interest rates unchanged at 5.25% today probably means that rates are already at their peak.

We think rates will stay at this peak of 5.25% for longer than the Fed and the ECB, but that when rates are cut in late 2024 they will then be reduced further and faster than widely expected.


Will 5.25% be the peak of Bank rate?

The big question is whether today’s decision marks the peak of UK interest rates, or if the Bank might be forced to push rates higher in future months.

Samuel Tombs, of Pantheon Macroeconomics, said he believes the Bank of England “probably is done” with rate hikes in the current run of increases and will hold again when it next decides on November 2.

Tombs says:

“It’s not possible to confidently predict the outcome of the MPC’s final two meetings this year, given the marginal vote split this month and the committee’s deliberate attempts to keep its options open.

“But with surveys pointing to a further increase in labour market slack, a slight slowdown in wage growth and lower Consumer Prices Index inflation by year-end, the case for hiking again likely won’t be stronger in November or December than today.

“Accordingly, we now think that 5.25% will be the peak level of bank rate in this hiking cycle.”

Fredrik Repton, senior portfolio manager at investment manager Neuberger Berman, agrees:

This may have been the final hike in the cycle as the UK economy is slowing and inflationary pressures are subsiding slowly.

ING’s developed market’s economist, James Smith, says the degree of division – the 5-4 split – is actually pretty unusual and shows just how close a call this meeting was.

“So how likely is another rate hike in November? It’s worth saying we only get one set of inflation and wage data before November’s meeting, so there’s not a huge amount for the Bank to go on. If there’s enough in the recent data to convince the Bank to pause this month, then we suspect the same will be true in November. Certainly, it looks like wage growth is at a peak, even if the downtrend is likely to be gradual. And services inflation should trend downwards over the coming months now that gas prices are so much lower. We therefore think the Bank will remain on hold for the foreseeable future. We don’t rule out a hike in November, but it will probably require a big upside surprise to either the services inflation or wage data.

“Bigger picture, the Bank has made it abundantly clear that it now thinks the length of time rates stay high is much more important than how high they go in the short term. Publicly, the Bank of England has been clear that it won’t be lowering rates any time soon. But in practice, we suspect we could see some initial cuts by the middle of next year, especially given our base case that the Fed and ECB will have begun cutting by that point too. The risk is that the first move comes a bit later, but ultimately the UK economy can’t sustain rates above 5% indefinitely, and we think something closer to 3% is a more likely medium-term level.”

The Institute of Directors has welcomed the Bank’s decision.

Kitty Ussher, chief economist of the IoD, says leaving interest rates on hold at 5.25% will avoid ‘overdosing’ the economy with higher borrowing costs.

“Business leaders will welcome today’s decision to keep interest rates on hold. It has become increasingly clear over the summer that the Bank’s action to date is having the desired effect of constraining demand and bringing down inflation expectations. That’s why, for the first time, the IoD called for a pause today.

“The economy shrank in July and both core and services inflation came in lower than expected in August. This combined with a more difficult external environment, negative PMI results, a weakening labour market and the anticipated fall in the Ofgem energy price cap in October means that inflation is likely to be substantially lower by the end of the year, and within sight of the Bank of England’s 2% medium-term target in 2024.

“To tighten further would therefore have risked administering an overdose before the existing medicine has had enough time to fully take effect. This is not to say that further calibration may not be needed in future, but it is too early to make that judgement today.”

VIDEO: Andrew Bailey says 'no room for complacency' over interest rates

Andrew Bailey, the governor of the Bank of England, has released a video clip explaining today’s decision.

Bailey reminds us that this is the first time in almost two years that the Bank has left interest rates on hold.

He says:

Inflation is falling, and we expect it to fall further this year. That is welcome news.

Our previous increases in interest rates are working.

Bailey insists, though, that the Bank will keep interest rates “high enough for long enough” to get inflation down to its 2% target.

But let me be clear that inflation is still not where it needs to be, and there is absolutely no room for complacency.

We’ll be watching closely to see if further increases are needed, and we will need to keep interest rates high enough for long enough to ensure that we get the job done.

Whatever happens, we’ll do what is needed to get inflation back to normal.

Andrew Bailey explains today’s decision on interest rates. Inflation has fallen a lot in recent months, and we think it will continue to do so. That’s welcome news. But there is no room for complacency.

— Bank of England (@bankofengland) September 21, 2023


There’s an interesting point hidden in today’s minutes.

Ahead of yesterday’s meeting, when they voted on interest rates, the Bank’s monetary policy committee was made aware of the flash S&P Global/CIPS UK composite PMI for September that would be released publicly on Friday 22 September.

That PMI survey tracks activity in the UK economy, so a poor reading might have encouraged some MPC members not to risk higher interest rates…


Bank holds interest rates: What the experts say

Reaction to the Bank’s decision to leave UK interest rates on hold is flooding in.

Hussain Mehdi, macro & investment strategist at HSBC Asset Management, says today’s vote was “a very tough call” which is reflected in the 5-4 vote split.

The surprise dip in August inflation and clear signs that that the UK economy is creaking under the pressure of higher rates are likely to have triggered a more dovish inclination among BoE policymakers.

We believe there is now a good chance that the Bank Rate has peaked – a view we share for both the Fed and ECB policy rates. Although the latest UK pay growth numbers are a cause for concern, labour market data is lagging. Forward looking indicators suggest the UK economy is already flirting with recession, a backdrop consistent with cooling wage growth and a policy pivot.

For us, we believe ongoing restrictive policy settings indicate there is a strong likelihood of developed markets entering recession in 2024. Amid market pricing of a “soft landing” scenario, this is consistent with a cautious and defensive positioning in portfolios. Nevertheless, the FTSE 100 may find some insulation from its defensive characteristics, decent valuations, and energy exposure in an environment of rising oil prices.”


Anna Leach, CBI Deputy Chief Economist, predicts the next few months will be tricky for the Bank, as it tries to assess the economy.

“The Bank of England said they’d be data-driven: a sharper-than-expected fall in services inflation driving a small fall in the headline inflation rate has proved enough for the Monetary Policy Committee to hit pause on rate rises after 14 consecutive increases. Despite the pause and a slowing of inflation, many businesses and households will be still feeling the impact of tighter credit and higher prices.

“The coming months will be tricky for the Bank. They’ll be vigilant regarding developments in wages and inflation expectations, given private sector wage growth is still topping 8%. Meanwhile, the outlook for energy prices has shifted, with oil prices now pushing up and European gas prices once again at the mercy of the winter weather outlook. This could slow the pace of decline in the headline inflation rate and risks underpinning still-high core inflation. But the economy is showing signs of turning too: the unemployment rate has risen, vacancies are down and activity is slowing.

The Bank of England has been bold and is signalling that its job is nearly done for now, explains Marcus Brookes, chief investment officer at Quilter Investors:

Inflation surprised to the downside yesterday and with economic data rolling over, the BoE clearly feels it now has enough cover to hit the pause button and assess things as we go. Market expectations of rates at or above 6% always appeared a little toppy, and clearly the data is trending in the right direction for the BoE to take this decision. With an election around the corner next year, it will be playing on the minds of the decision makers not to overcorrect and instead begin to assess what impact the action to date has had.

“Andrew Bailey and the rest of the Monetary Policy Committee will also be looking closely at the US, where the Federal Reserve hit the pause button on interest rates. Sentiment across the pond remains hawkish though, with one more rate rise expected this year. Clearly that economy is in a much stronger position so can probably take another rate rise, but they are looking to reach the end of the hiking cycle and the Bank of England will not want to diverge too greatly from a key economic power. As such, we wouldn’t be surprised to see the BoE begin to mirror the Fed once again.

““However, while this may be the end of the interest rate hiking cycle, this doesn’t mean the pain will simply go away for businesses and consumers. The BoE has made it clear that rates will be higher for longer, so investors need to prepare accordingly. Quality companies, with stable and sustainable cashflows will ultimately benefit most from a period of rates being above 5%, and as such now is a time to hold the nerve and not try to time any cut in rates, as these are a long way off for now.”

Jon Cunliffe, Megan Greene, Jonathan Haskel and Catherine Mann voted, in vain, to raise UK interest rates again because they fear there are “more persistent” inflationary pressures in the economy.

The minutes of this month’s meeting say:

Four members judged that a 0.25 percentage point increase in Bank Rate, to 5.5%, was warranted at this meeting.

Although there were now some signs of weakening economic activity, consumer sentiment appeared to be holding up, real household incomes had started to rise, and forward-looking indicators of output had remained positive. The labour market was still relatively tight, consistent with a possible rise in the medium-term equilibrium rate of unemployment, and the pace of loosening had been slow. Measures of wage growth and services inflation had remained at rates above those consistent with meeting the 2% target sustainably in the medium term. While services CPI inflation had fallen by more than had been expected in the latest data release, this appeared to have been driven mainly by volatile components and had followed recent upside surprises.

These members judged that overall there was evidence of more persistent inflationary pressures. Although the monetary stance was weighing increasingly on economic activity, a 0.25 percentage point increase in Bank Rate at this meeting was necessary to address the risks of more deeply embedded inflation persistence and bring inflation back to the 2% target sustainably in the medium term.

After 14 consecutive hikes, the BoE look to have reached table mountain, after voting to hold the base rate at 5.25%. This will give those beaten by the relentless “track” a reprieve & bolster market confidence for a potential gradual descent at some point next year

— Emma Fildes (@emmafildes) September 21, 2023

The Bank of England leaves interest rates unchanged at 5.25% with the votes split 5-4. Pound sterling weakens by -0.3% and the key support level in GBPUSD at 1.23 seems to have broken. Yields across the gilt curve fall back, pairing early gains.

— Saxo UK (@SaxoUK) September 21, 2023


This is why Andrew Bailey, Ben Broadbent, Dave Ramsden, Swati Dhingra and Huw Pill voted to leave UK interest rates on hold at 5.25% today:

There were signs that the labour market was loosening. The recent acceleration in the AWE [average weekly earnings] was noteworthy but was not apparent in other measures of wages.

Although it was important not to put too much weight on a single data point, headline and services CPI inflation had fallen back and were lower than had been expected. Regarding activity, contacts of the Bank’s Agents had become more downbeat, and the output PMI in August was now consistent with falling GDP. For most members within this group, the latest developments meant that the judgement to keep Bank Rate unchanged at this meeting rather than increase it was finely balanced.

Conditions were likely to warrant a restrictive policy stance being maintained until material progress had been made in returning inflation to the 2% target sustainably.

For one member, however, the risks of overtightening policy had continued to build, increasing the likelihood of output losses and volatility that would require sharper reversals of policy. Lags in the effects of monetary policy meant that sizeable impacts from past rate increases were still to come through.

I suspect that ‘one member’ is economics professor Swati Dhingra, who has been a dovish voice on the MPC voting against earlier rate rises.


BoE: CPI inflation to fall significantly further in near term

The Bank of England predicts that inflation will keep falling “in the near term”, thanks to energy prices being lower than a year ago.

But price rises may stay “elevated” in the services sector.

The minutes of this month’s meeting says:

CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation.

Services price inflation, however, is projected to remain elevated in the near term, with some potential month-to-month volatility.

The Monetary Policy Committee also predicted “potential noise in the prices of travel-related services” – perhaps a sign that air fares could be volatile in the months ahead?

Signs of weakness in the UK jobs market also influenced today’s decision.

The Bank’s policymakers point out that “there have been some further signs of a loosening in the labour market, although it remains tight by historical standards.”

Data last week showed a rise in UK unemployment, and a drop in unemployment, along with strong wage growth.

Pound hits six-month low

The pound has dropped to its lowest level in six months.

Sterling, which was already weak before the Bank’s announcement, has now dropped to $1.2234, the lowest since the end of March.

BREAKING: Pound drops below $1.23, as Bank of England decides to keep benchmark interest rate at 5.25%

— Bloomberg UK (@BloombergUK) September 21, 2023

BoE: UK growth likely to be weaker than expected

The Bank of England has lowered its growth expectations for the economy this year, after GDP fell by 0.5% in July.

In the minutes of this month’s meeting, the BoE says:

UK GDP is estimated to have declined by 0.5% in July and the S&P Global/CIPS composite output PMI fell in August, although other business survey indicators remain consistent with positive GDP growth.

While some of this news could prove erratic, Bank staff now expect GDP to rise only slightly in 2023 Q3. Underlying growth in the second half of 2023 is also likely to be weaker than expected.

Bank split 5-4 on rates

The Bank of England was split on today’s interest rate decision, a sign that it really was a knife-edge decision.

Governor Andrew Bailey, deputy govenors Ben Broadbent and Dave Ramsden, external member Swati Dhingra and chief economist Huw Pill all voted to leave interest rates on hold.

But four members preferred to increase Bank Rate by 0.25 percentage points, to 5.5% – deputy governor Jon Cunliffe, and external members Megan Greene, Jonathan Haskel and Catherine Mann.


Newsflash: The Bank of England has voted to leave UK interest rates on hold at 5.25%.

This is the first time since November 2021 that UK borrowing costs have stayed on hold.

The Bank’s Monetary Policy Committee voted to leave borrowing costs unchanged after yesterday’s surprise fall in inflation.

More to follow….


Bank of England's rate decision coming up shortly. Latest inflation data was quite impressive.

— CMO 🌐 (@CMO_qEFC) September 21, 2023

Just FIVE minutes to go…. and the money markets are indicating that there’s a roughly 61% chance that the Bank of England raises interest rates again, at noon.

Here’s another photo of the protests outside the Bank of England today, with just 10 minutes until one of the most uncertain interest rate increases in some time….

Protestors wearing Andrew Bailey and Rishi Sunak masks outside the Bank of England, London, ahead of the announcement on interest rates.

The Prime Minister said he is focused on bringing inflation down as quickly as possible when asked about high interest rates.

Asked when people would start to feel better off, Rishi Sunak told broadcasters:

“I know things are tough right now for families and businesses with the cost of living, and that is why my number one priority coming into this year was to halve inflation.

“We had very welcome news yesterday which people might not have seen, but inflation yesterday fell faster than many people were expecting.

“That shows that our plan is working. We have got to stick to the plan to bring inflation down.

“That is what my number one economic priority is and that is what we are delivering, and in the meantime we have got support in place to help families that are struggling, whether it is those on welfare or those with mortgages.

“The most important thing I can do to help people is to bring inflation down as quickly as possible. Yesterday’s figures show that the plan is working.”

UK inflation fell to 6.7% in August from 6.8% in July, due to weaker growth in food prices and monthly falls in the cost of hotels and air travel.

The head of UK retailer Next has declared that he can’t see any reason for the Bank of England to raise interest rates.

The Sun’s Ashley Armstrong has the details:

Forty minutes until @bankofengland rate decision is out and Next boss Lord Simon Wolfson says “there is nothing that we see that suggests that interest rates need to go higher”.

If Bank does do 15th hike “it obviously won’t be positive for the consumer”

— Ashley Armstrong (@AArmstrong_says) September 21, 2023

Lord Wolfson has been speaking to reporters after Next raised its profit forecasts again this morning (see earlier post)

Tension is rising in the City of London, with less than an hour until the Bank of England reveals its interest rate decision.

The money markets are still indicating that rates are more likely to rise than not at noon, to a new 15-year high.

A quarter-point increase, from 5.25% to 5.5%, is currently seen as a 61% possibility, with no change a 39% chance. [That’s based on interest rates futures]

Another increase in rates would add to the pressure on borrowers, as Alastair Douglas, CEO of TotallyMoney, explains:

“Halloween may be a month away, but the Bank of England has already had a Nightmare on Threadneedle Street this year. It’s no surprise that public confidence in the Bank is at a record low — the forecasts have failed, and the rate hikes have struggled to slow the cost of living at the planned pace. However, for the third month in a row, the dial has moved — and in the right direction.

“It’s unlikely that interest rates will come down any time soon, and lenders must provide customers with support and value. Some have been reluctant to pass on the benefits of the hikes to savers, while others are charging the UK’s 679k Standard Variable Rate mortgage customers up to 9.49% interest on their borrowing.

“Sustained financial stress has already pushed people to breaking point — they’re missing bills and slipping into mortgage arrears. Support is slim, and more people are taking out more credit — including a third of renters who have used it to keep a roof over their heads.

Demonstrators urge Bank of England not to raise interest rates

Protest against interest rate hikes outside Bank of England, London, UK - 21 Sep 2023Mandatory Credit: Photo by Vuk Valcic/ZUMA Press Wire/Shutterstock (14114510b) Activists from the group Positive Money donning masks of Rishi Sunak, BOE Governor Andrew Bailey and various banks stage a protest against interest rate hikes and profiteering outside the Bank of England. Protest against interest rate hikes outside Bank of England, London, UK - 21 Sep 2023
Activists from the group Positive Money are staging a protest against interest rate hikes and profiteering outside the Bank of England. Photograph: Vuk Valcic/ZUMA Press Wire/Shutterstock

Over at the Bank of England, a protest is taking place to urge the central bank to stsop raising interest rates.

It’s organised by Positive Money, the campaign group, who warns that higher interest rates are transferring billions of pounds to commercial banks, while harming millions of households.

Protestors wearing masks of Andrew Bailey and Rishi Sunak are demanding that the Bank of England stops trying to respond to inflation with policies that make the cost of living crisis worse.

Activists from the group Positive Money donning masks of Rishi Sunak, BOE Governor Andrew Bailey and various banks stage a protest against interest rate hikes and profiteering outside the Bank of England.

They are als urging the government to introduce a windfall tax on the unearned profits banks are making from interest rate rises.

Positive Money says a poll held by YouGov has found that only 12% of UK adults oppose a windfall tax on banks, whereas 58% support it.

Fran Boait, co-executive director, at Positive Money, says:

“Banks’ record profits are coming at the direct expense of the public, who are footing the bill for higher interest rates. These profits aren’t being reinvested back into the economy or creating new jobs, with banks shutting down branches across the country.

“After the crash an extra tax on banks’ profits was introduced to help ensure the sector makes a fair contribution, but the government has actually recently cut this surcharge, just when it is needed more than ever.

“Jeremy Hunt should take a leaf from the Thatcher government’s book and introduce a windfall tax on banks’ unearned profits in the upcoming Autumn Statement, which could help fund support for households during the cost of living crisis.”

Market is expecting potentially one last hike from the Bank of England 🇬🇧 and is surprised by a lack of action by the Swiss National Bank

— Special Situations 🌐 Research Newsletter (Jay) (@SpecialSitsNews) September 21, 2023

Furniture retailer DFS has been hit by the cost of living squeeze, with earnings halving last year.

DFS reported this morning that pre-tax profits fell by 49% to £29.7m in the year to 25 June, down from £58.5m.

DFS said it was “continuing to win share in a very tough market”, and that the last year had been a significant challenge due to the weak economic backdrop.

The company also says it is confident the market will recover, but can’t predict how quickly that will happen; it expects a “modest” rise in profits next year.

The Bank of England’s decision at noon today “is a coin toss”, says Marios Hadjikyriacos, senior investment analyst at XM, after UK inflation eased in August.

Following the latest inflation report that was colder than expected, markets are pricing this rate decision almost as a 50-50 coin toss.

Admittedly, the data pulse argues for no action. The labor market lost jobs in July while economic growth stagnated, and business surveys suggest these trends will persist or worsen.

The only real argument in favor of a rate increase is wage growth, which is extremely hot and continues to accelerate.

More central bank action: Taiwan’s central bank has kept interest rates on hold.

In a unanimous decision, Taiwan’s central bankers left their key rate at 1.875%, where it has stood since March.

They also cut their growth forecast for 2023, fearing that slugging global demand will hit Taiwan’s export-heavy economy.

Taiwan is a major producer of semiconductors used in everything from cars to smartphones, but with global consumer demand hit by high inflation, rising interest rates and the impact of the Ukraine war on global demand, its economy slipped into recession in the first quarter, Reuters points out.

Taiwan Central Bank Keeps Rates Unchanged

— WSJ Central Banks (@WSJCentralBanks) September 21, 2023

Pound below $1.23 ahead of UK interest rate decision

Sterling remains weak this morning, as the City braces to learn whether the Bank of England has raised interest rates again, or hit the pause button.

The pound has traded as low as $1.2293 this morning, the weakest since 3th April and down around half a cent.

Victoria Scholar, head of investment at interactive investor, says today’s BoE’s decision is “one of the most uncertain decisions in a while,” adding:

On the one hand, inflation is still at 6.7%, sharply above the Bank of England’s 2% target, wage growth remains extremely strong and oil prices have been surging, all supporting the case for further tightening. On top of that, the Federal Reserve (which is often a trendsetter in terms of monetary policy as the central bank to the world’s largest economy) suggested it is likely to raise rates again this year as part of its hawkish hold.

On the other hand, UK economic data has been softening with weak PMI readings, an uptick in the unemployment rate and a disappointing GDP reading for July, highlighting the fragility of the UK economy. Overtightening has the potential to push the UK into a recession, which supports the case for a hold today. This of course would be the preferred outcome for equities, with the FTSE 100, FTSE 250, and the UK housebuilders in particular rallying on Wednesday after the Swaps markets drastically wound back their probability of a hike.

The pound has hit the lowest level since April against the US dollar this morning while the FTSE 100 and FTSE 250 are also under pressure, reflecting the broader risk-off mood following the Fed’s decision last night.”


The Bank of England’s policymakers will have been “very pleased with yesterday’s inflation numbers” when they met to set interest rates, says Robert Dishner, senior portfolio manager at investment manager Neuberger Berman:

Levels came in well below their forecasts and market expectations. The declines were seen both in core goods and services. This should reduce but not eliminate the chance of a hike today and would expect the market to settle at about a 60% chance.

However, if the BoE does go, its likely to be a dovish hike and it’s not entirely certain they will hike. Expect for them to keep the “sufficiently restrictive for sufficient long” language even if they decide not to hike rates.

The Bank’s Monetary Policy Committee actually met yesterday to vote on interest rates, but we don’t get the decision until midday today.

Norges Bank, Norway's central bank, in Oslo.
Norges Bank, Norway's central bank, in Oslo. Photograph: Xinhua/Shutterstock

Another central bank decision hits the wires, with Norway’s Norges Bank lifting its key interest rate by a quarter-point.

Norges Bank’s Monetary Policy and Financial Stability Committee has raise the policy rate from 4.0% to 4.25%, due to inflation being “markedly” above target.

Governor Ida Wolden Bache says:

“Whether additional tightening will be needed depends on economic developments. There will likely be one additional policy rate hike, most probably in December.


— Financial Networking Group (@FngFinancial) September 21, 2023

Sweden’s central bank, the Riksbank, has lifted its key interest rate by a quarter of one percent, as expected.

The Riksbank has raised its key policy rate to 4%, and also hinted it could do more to bring inflation back to its 2% target.

The Riksbank says:

Developments are thus going in the right direction, but inflationary pressures in the Swedish economy are still too high.

For inflation to fall back and stabilise around the target of 2% within a reasonable period of time, the Executive Board has therefore decided to raise the policy rate by 0.25 percentage points to 4%. The forecast for the policy rate indicates that it could be raised further.

Paul Donovan, chief economist at UBS Global Wealth Management, says the Bank of England decision at noon today is a difficult call.

Yesterday’s data shows profit-led inflation under pressure, but some of the inflation drop was due to volatile components.

Economic growth has been revised significantly stronger, but that also means labor costs should be lower. If I had a vote (I haven’t been made governor yet), it would be for unchanged policy, but that may not be the majority decision today.

Switzerland leaves rates on hold

An aerial view of the Swiss National Bank building in Zurich, Switzerland.
An aerial view of the Swiss National Bank building in Zurich, Switzerland. Photograph: Michael Buholzer/EPA

Just in: Switzerland’s central bank has left interest rates on hold, unexpectedly.

The Swiss National Bank has decided to leave its policy rate unchanged at 1.75%, defying expectations of another rise to 2%.

The SNB points out that inflation has declined further in recent months, to 1.6% in August, saying:

The significant tightening of monetary policy over recent quarters is countering remaining inflationary pressure. From today’s perspective, it cannot be ruled out that a further tightening of monetary policy may become necessary to ensure price stability over the medium term.

The SNB adds the growth outlook for the global economy in the coming quarters remains subdued, with a risk that some countries continue to raise interest rates to combat inflation.

This surprise hold has knocked the Swiss franc down around 0.7% against the US dollar and the euro.



— GTC@前橋市の投資教室 (@fx_gtc) September 21, 2023

Next predicts prices could fall next year

UK retailer Next has raised its profit guidance, again, this morning after sales were boosted by pay rises among its customers, and sunny weather this spring.

Next, which sells online, through its catalogue business, and on the high street, now expects pre-tax profits of £875m this year, £30m more than previously expected.

In its half-year trading update, CEO Simon Wolfson explains that Next had expected full price sales to fall by 3% in February-July, but they atually rose by 3.2%.

Wolfson explains:

In reality, we were overly cautious about the prospects for sales in the current year, we underestimated the support nominal wage increases, and a robust employment market, would give to our top line.

We also believe the exceptionally warm weather in late May and June served to significantly boost sales of our summer clothing at a critical time (a factor we need to bear in mind when it comes to our forecast for next year).

Next’s must-read annual report is out& it’s the most thorough analysis of the market going. It’s a best in class retailer but it shows extreme levels of self-awareness and details how weather and wage inflation play a role in its sales

— Ashley Armstrong (@AArmstrong_says) September 21, 2023

The Bank of England could be concerned to hear that rising wages helped to bolster Next’s profits.

But Next has reassuring news for the BoE, and its own customers, too – it predicts that inflationary pressures on selling prices and operating costs will continue to ease.

Wolfson, whose notes to the City are always good value, explains:

It was inevitable that price inflation would ease. Even if consumers were to spend the same amount of money on clothing, higher prices would mean the number of garments sold would fall. That is what has happened.

And as a result, the demand for labour, commodities, production and freight has diminished throughout the entire supply chain - from fabric mills through to container ships.

In fact prices have fallen faster than we expected, and we have revised our estimate of Autumn Winter 2023 cost price inflation down from 3% to 2%.

For next spring and summer, Next predicts that prices could fall by up to 1%, having risen by 7% this Spring/Summer season.

Terrific illustration from Next plc on the slowdown in price inflation that has been “faster than we expected” & “throughout the entire supply chain”. Part of the body of data, alongside official statistics, for the MPC to consider today. Next plc RNS’ remain best in class.

— Simon French (@shjfrench) September 21, 2023

Next - "The biggest risk is that, in making multiple investments, we build an unwieldy retail conglomerate that lacks the focus and agility we have worked so hard to maintain over the last thirty years". Always an interesting company to read the thoughts from...

— Chris Bailey (@Financial_Orbit) September 21, 2023


The City is swinging back towards predicting an increase in UK interest rates today.

The money markets now indicate that there is a 60% chance that the Bank of England raises interest rates by a quarter of one percent today, and only 40% chance of no-change, vs 50:50 last night.

Nationwide launches 8% account as battle for UK’s savings intensifies

Competition among financial firms for a slice of the nation’s savings is intensifying, with Nationwide launching an account paying a “market-leading” 8% interest.

A string of Bank of England interest rate rises have pushed up savings rates across the board, and many experts expect another one on Thursday.

With some easy-access savings accounts still offering only about 1% interest, the financial data provider Moneyfacts said it was essential for savers to “ditch and switch” if their loyalty was not being rewarded.

Nationwide’s new deal is a regular savings account, available exclusively to its current account customers.

The building society is also attempting to attract new current account customers by offering a £200 payment to anyone who moves to it using the switching service.

UK public borrowing rose in August

New official data shows that Britain’s budget deficit swelled last month, but not by as much as expected.

Britain borrowed £11.6bn to balance the books in August, which is £3.5bn more than in August 2022.

It’s the fourth highest August borrowing since monthly records began in 1993, but lower than the £13bn predicted by the UK’s fiscal watchdog, the Office for Budget Responsibility (OBR).

Total public sector spending was £7.2bn higher than a year ago, while public sector receipts only rose by £3.7bn.

Britain paid out £5.6bn in interest on its national debt last month. Almost £2bn was caused by the increase in inflation between May and June, which lifted the interest payments on index-linked gilts.

So far this financial year, the UK has incurred a deficit of almost £70bn – which is £19.3bn more than in April-August 2022.

However, it is £11.4bn less than the £81.0bn forecast by the OBR, which may give the Treasury some wiggle-room for tax cuts or spending increases.

Public sector net borrowing (excluding public sector banks) was £11.6 billion in August 2023, up £3.5 billion on August 2022.

It was the fourth-highest August borrowing since monthly records began in 1993.


— Office for National Statistics (ONS) (@ONS) September 21, 2023

Chancellor of the Exchequer Jeremy Hunt said:

“These numbers show why after helping families in the pandemic we now need to balance the books.

That becomes much easier when inflation is under control because higher inflation pushes up interest rates, so we need to stick to the plan to get it down.”

Public sector net debt was £2,594.1 billion at the end of August 2023, provisionally estimated at around 98.8% of the UK’s annual gross domestic product.


— Office for National Statistics (ONS) (@ONS) September 21, 2023


Pound lowest since April

The pound has dropped to a five-month low this morning, touching $1.2305 against the US dollar.

Sterling weakened due to expectations that UK interest rates will not rise as high as previously expected, ahead of the Bank of England announcement at noon.

Plus, the US dollar is being lifted from expectations that US interest rates have not yet peaked., following the Federal Reserve meeting last night.

The pound vs the US dollar
The pound vs the US dollar Photograph: Refinitiv

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, argues that the BoE will raise interest rates at noon today:

Up until yesterday, the expectation was an almost certain 25bp hike from the BoE at today’s meeting, but yesterday’s shocker inflation data has shaken these expectations. In fact, no one, and even less the BoE Chief Bailey himself, was expecting to see softer inflation in Britain last month, when oil prices spiked and sterling fell. Therefore, the surprising nature of yesterday’s data release should prevent the BoE from announcing a surprise rate pause today.


  1. Rising energy prices, and falling sterling hint at potentially higher inflation in the foreseeable future,

  2. At 6.2%, core inflation is still more than three times the BoE’s 2% inflation target.

In summary, the BoE is not there yet, Ozkardeskaya adds:

And if sterling continues to fall – which is the most plausible outcome if the BoE softens its policy stance more than necessary today, inflation in Britain will become harder to contain. As a result, a - maybe - last 25bp rate hike is on today’s menu to limit losses in sterling so that energy costs wouldn’t spike as a result of a happy CPI report, that’s happiness would remain short-lived.

Introduction: Bank of England setting interest rates today

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Before early yesterday morning, investors were pretty convinced that the Bank of England would raise interest rates today, for the 15th time in a row.

But Wednesday’s surprise fall in UK inflation, from 6.8% to 6.7%, has shaken the City, leaving traders – and businesses and households across the country – unsure what to expect from the BoE at noon today.

The money markets are currently indicating that the odds of a rate rise, or a hold, are roughly 50% each. That suggests the Bank’s monetary policy committee will have a fierce debate at this month’s meeting over whether to pause their hiking cycle today, or not.

Many analysts think we will get another rate hike today, taking borrowing costs to a 15-year of 5.5%.

Not all, though. Goldman Sachs yesterday predicted that the BoE will keep bank rate unchanged today, and that rates are already at their peak, after “the August inflation print surprised meaningfully to the downside.”

But other experts fear that leaving rates on hold today could be declaring victory too soon.

Kim Crawford, global rates portfolio manager at J.P. Morgan Asset Management, explains that a pause at this meeting “could backfire”, arguing:

‘The Bank of England’s decision is more finely balanced as activity data weakens more clearly, but a pause at this meeting could backfire.

‘Since the last meeting, services inflation has come in lower than the Bank of England’s forecasts, and there has been clearer demand-led loosening in the labour market, but wage growth has still continued to surprise to the upside.

Last night, the US Federal Reserve delivered a hawkish pause, by maintaining US interest rates on hold but keeping the door open for future hike.

That helped to push the US dollar to a five-month high against the pound overnight, at just over $1.23.

We actually hear from ten central banks today, including interest rate decisions in Turkey, Sweden, Switzerland and Norway, as well as the UK.

WATCH: Investors put a nearly 50-50 chance on the Bank of England keeping interest rates on hold amid surprise fall in UK inflation in August

— Reuters Business (@ReutersBiz) September 20, 2023

The agenda

  • 7am BST: UK public finances for August

  • 8.30am BST: Sweden’s Riksbank interest rate decision

  • 8.30am BST: Swiss National Bank interest rate decision

  • 9am BST: Bank of Norway interest rate decision

  • 12pm BST: Bank of England interest rate decision

  • 12pm BST: Bank of Turkey interest rate decision

  • 1.30pm BST: US weekly jobless claims



Graeme Wearden

The GuardianTramp

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