Money managers expected the bank to hold rates. The U.S. Federal Reserve on Nov. 1 held rates at its target range of 5.25%-5.5%, and the European Central Bank kept rates unchanged in October.
But managers are warning of still high — albeit falling — inflation and the potential for a recession early next year.
"While our base case a month ago was for another rate hike, economic and price data since then has served up a surprise on the downside," said Shweta Singh, chief economist at Cardano, in a comment. Inflationary pressures, she said, are past their peak, and the firm expects headline inflation to fall sharply.
Managers also highlighted the potential for the BOE to be the first major central bank to cut rates — although they do not anticipate that kind of move to come anytime soon, a sentiment echoed by BOE Gov. Andrew Bailey's opening remarks at a press conference on Nov. 2.
"Let me be clear, there is absolutely no room for complacency. Inflation is still too high," Bailey said in a published transcript on the BOE's website. "We will be watching closely to see if further increases in interest rates are needed. But even if they are not, it is much too early to be thinking about rate cuts."
Cardano's Singh agreed. "While we expect a recession in the U.K. early next year, we do not expect policy rate cuts until Q3 2024," she said.
Georgina Taylor, head of multiasset strategies U.K. at Invesco, said in an emailed comment that the BOE could be the first to cut ahead of the Fed and the ECB because the U.K. economy "is more sensitive to interest rates than the U.S. given the structure of the housing market, which comprises a greater proportion of shorter-term and variable rate mortgages. Therefore, cutting interest rates in the U.K. should feed more quickly to improved consumer and corporate confidence."
Taylor added that the debate over rate cuts "will keep the market guessing on the policy over the coming months but in the face of a slowing economy and reaching peak rates, we believe the coos from the doves will get louder and U.K. gilts are now an attractive addition to our multiasset portfolios."