The Bank of England has been slammed for pursuing a “schizophrenic” approach to its key interest rate.
Threadneedle Street has held interest rates at 5.25 percent for the third time in a row and indicated cuts are unlikely in the coming months.
Samuel Mather-Holgate, an independent financial advisor at Mather and Murray Financial, told convey.co.uk the BoE appears “schizophrenic on base rate”.
He said: “The day after the US showed the way, with expectations of three rate cuts next year, our central bank has three policy members voting for more rate hikes.
“Their own forecasts today state inflation will be much lower than expected next year, but also say they are going to keep rates higher for longer.
“The Government needs to consider whether he’s (Andrew Bailey) the right person for this job, given the impact on households and businesses.”
The US Fed signalled it expects to make three interest rate cuts next year after it kept rates on hold Wednesday. The European Central Bank, which sets policy for the 20 European Union countries which use the euro, is also expected to hold rates on Thursday (December 14).
BoE Governor Andrew Bailey stressed there is “still some way to go” in policymakers’ efforts to get inflation down.
The Bank’s Monetary Policy Committee (MPC) voted in favour of keeping the rate steady at its current level, which is a 15-year-high.
Six members of the nine-strong committee were in favour of maintaining the rate at 5.25%, while three called for an enhance to 5.5 percent.
The interest rate – which helps dictate mortgage rates from banks – had been set at 5.25 percent in previous meetings in September and November, after 14 consecutive increases.
Suren Thiru, Economics Director at chartered accountants group ICAEW, said the Bank was being “unnecessarily hawkish” in its language on the outlook for interest rates.
He said: “Keeping interest rates on hold once again is advance confirmation that the Bank of England has completed this hiking cycle, providing respite to households and businesses.
“Though interest rates have peaked, the long time-lag between rate rises and its effect on the real economy means that the full impact of this prolonged period of monetary tightening has yet to be fully realised.
“The Bank’s rhetoric on rates is unnecessarily hawkish given slowing wage growth and a deteriorating economy, raising fears that it will keep rates high for too long, unnecessarily damaging an already struggling economy.”
David Goebel, Associate Director of Investment Strategy at wealth manager Evelyn Partners, warned of the risk markets will be disappointed when base rate cuts stumble to materialise as quickly as currently priced in.
He said: “After the November MPC meeting, the first cut in interest rates had been priced in for August 2024. Since then, markets have grown increasingly optimistic about the timing of rate cuts – expected in May shortly before today’s meeting and remained little changed immediately after.
“We think the UK economy faces more inflationary challenges than some of its global peers, in particular the US, and would propose the market for UK rates has been swept up recently in a wave of euphoria over interest cuts coming sooner than previously expected.”
The markets on Thursday morning indicated they expect the UK’s interest rate to drop to 4 percent by the end of next year. However, in its latest report, the Bank’s MPC appeared cautious over the potential for cuts soon.
It stated: “The committee continues to evaluate that monetary policy is likely to need to be restrictive for an extended period of time.
“advance tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.”
Meanwhile, Mr Bailey also signalled that policy will need to remain stable to weigh advance on inflation.
