The inaction by the monetary policy committee was widely expected and the Bank did not release a statement, but markets are increasingly convinced it will start a series of interest rate cuts late in the year.
Economists remain much less sure though whether the Bank will or should start cutting rates soon, especially with the pound’s decline likely to raise import prices further and provide a stimulus to Britain’s exporters.
The backdrop for the committee has been a relentless series of weak data, which was reinforced on Thursday when the Halifax bank said house prices had fallen 10.9 per cent over the past year. The price of properties for which the Halifax approved a mortgage in August was on average 1.8 per cent lower than in July, the lender said.
New car registrations were also particularly weak in August, the Society of Motor Manufacturers and Traders said on Thursday.
Similar data on economic prospects have persuaded interest rate futures markets that the Bank of England will soon start to reduce rates. The overnight index swap market has priced in at least three quarter-point cuts, starting later this year.
Some economists agree that the Bank will wait until inflation has peaked close to 5 per cent in the next few months and then start aggressively easing interest rates to cushion the economy. It is only a matter of time before [the MPC] is forced to respond to the rapidly deteriorating outlook for the economy by cutting rates very aggressively,” said Roger Bootle, economic adviser to Deloitte.