The decision was widely expected by economists and financial market participants, although they had frequently changed their minds about the likely path for interest rates over the past three months.
After the Bank’s August inflation forecasts, another rise in rates to 6 per cent seemed certain. The global credit squeeze later in that month and in September then raised expectations of a cut at the November meeting as the turmoil seemed likely to slow the economy more sharply than the Bank was expecting.
But the predictions of a cut have more recently have fallen by the wayside after strong economic data and speeches by MPC members with a distinct wait and see” flavour.
Third quarter economic growth was estimated by the Office for National Statistics at an above average rate of 0.8 per cent and the Bank has never cut rates with such momentum still in the economy.
By leaving rates on hold, the MPC put more weight on whole-economy figures than on a series of more peripheral, but surpringly feeble economic data that have been published this week.
Industrial production, the purchasing managers’ index of service sector output, the British Retail Consortium’s retail sales index and the house price index from Halifax, the mortgage lender, have all been weaker than expected.
The MPC had the advantage this month of being able to set rates after looking at the quarterly economic data contained in the Bank’s inflation report to be published next Wednesday.
It wants an economic slowdown to keep inflation in check, but not an abrupt halt in growth.
One of the MPC’s greatest dilemmas is that its remit is to hit a 2 per cent inflation target, and even with the havoc in credit markets, the threat remains of rising inflation from high oil, commodity and food prices.
This week, the British Retail Consortium’s assessment of shop prices showed the annual rise in prices was at its highest level this year.
In such uncertain economic conditions, the MPC members will feel able to change their minds in the months to come if comelling evidence emerges that households have lost their resilience to financial market turmoil or if inflation starts rising to dangerous levels again.
The commmittee has shown it is now more willing than before to change rates in meetings other than in Inflation Report months. So the decision on Thursday not to move has little bearing on the outlook for UK interest rates in the months to come.