"As far as the Bank of England is concerned, it is too soon for a pivot in the battle against high inflation.
That was the strong message from Threadneedle Street on Thursday, just hours after the US Federal Reserve lit a fire under global markets by heralding rate cuts in the new year.
While Jay Powell, the Fed chair, seized upon favourable trends in US inflation and labour markets as he executed a U-turn on the interest rate outlook, BoE governor Andrew Bailey and his colleagues went to lengths to downplay any tentative signs of good news in the UK economy.
Voting six to three to hold rates at 5.25 per cent, the BoE’s Monetary Policy Committee warned it is confronting a more stubborn problem with inflation than its counterparts across the Atlantic — or indeed in the euro area, where the European Central Bank also held rates today.
“They are minded to keep policy restrictive well into 2024, and that is a sharp contrast with the Fed,” said Jens Larsen, a director at Eurasia Group. “The Fed’s [decision] was a surprise and a pivot. The BoE has not pivoted at all.”
The hawkish message in London was partly because the BoE remains anxious to avoid domestic criticism that it might underestimate the inflation outlook. Last month a committee of the House of Lords accused the bank — and its peers — of “complacency” about inflation after the Covid-19 pandemic.
But as the minutes to the latest bank decision made clear, policymakers genuinely believe the UK is in a deeper hole with regard to inflation than its peers.
Wage growth is higher in the UK than in the US and euro area, as is services inflation and the “core” measure of prices that strips out food and fuel, the minutes noted."
FT.com