The Bank of England hit the pause button on U.K. interest rates, with its monetary policy committee voting by a majority of 5-4 to maintain the rate at 5.25%.
At its meeting that ended on Sept. 20, four members of the MPC wanted to increase rates by 25 basis points, the BOE said in a news release.
The central bank said U.K. GDP is estimated to be down 0.5% in July, and it expects GDP to rise only slightly in the third quarter. Underlying growth in the second half of this year is also likely to be weaker than expected.
The labor market has shown signs of loosening, although it remains tight by historical standards.
However, money managers cited the fall in inflation — which came in at 6.7% in August, down from 7.9% in June and 6.8% in July — as key to the pause.
"This was a very tough call for the MPC which is reflected in the 5-4 vote split," Hussain Mehdi, macro and investment strategist at HSBC Asset Management, said in an emailed comment. "The surprise dip in August inflation and clear signs that the U.K. economy is creaking under the pressure of higher rates are likely to have triggered a more dovish inclination among BOE policymakers."
HSBC AM executives "believe there is now a good chance that the bank rate has peaked – a view we share for both the Fed and ECB policy rates."
Shweta Singh, chief economist at Cardano, said in a separate comment that recent labor market and inflation data "have just proven sufficient for the Bank of England to 'wait and see' how inflation trends continue to develop through the" fall.
The firm does not think inflation has been tamed for this cycle, however, with underlying pressures remaining sticky and likely to stay elevated over the next 12 months. "We think that today's MPC decision represents a pause within, rather than an end of, the tightening cycle. We still expect one more interest rate hike and further expect that U.K. monetary policy will have to remain in restrictive territory for some time before cuts could be considered."
The bank's MPC next meets in November.