BoE keeps rates unchanged and vows gradual approach to easing

In line with our expectations, the BoE kept Bank Rate unchanged at 5.00%. The MPC voted by a majority of 8-1 to maintain interest rates stable with.one member Swati Dhingra vot ing in favor of a further quarter-point reduction. The MPC decided unanimously to maintain the pace of quantitative tightening (QT), planning to reduce its stock of UK government bonds by £100 billion over the next 12 months , to a total of £558 billion . S ome market participants had anticipated an acceleration of QT given that £87 billion of APF gilt holdings will be maturing and so the gilt sales will go down to around £13 billion from £50bn in the previous year . The Committee stressed that the monetary policy w ould need to be restrictive sufficiently long until inflation risks have dissipated further. The degree of monetary policy restrictiveness will be assessed on a meeting-by-meeting approach. While eight members judged the current policy stance appropriate, most members saw a gradual approach to making polic y less restrictive as warranted going forward . Governor Andrew Bailey said that the BoE “should be able to reduce rates gradually over time” and “such a path would depend on price pressures continuing to ease ” stressing a necessity to be careful “ not to cut too fast or by too much ”. We expect a 25bp rate reduction in November and four rate cuts next year. Should services and core inflation decrease more rapidly and labour market cracks appear more clearly , we would change our call for a more aggressive rate cutting cycle.