Bailey Speech: BoE Governor speaks on policy outlook after holding interest rate steady at 5.25%

Andrew Bailey, Governor of the Bank of England, presents the Monetary Policy Report and responds to questions from the press following the Bank of England's (BoE) decision to leave the policy rate unchanged at 5.25%. 

Follow our live coverage of the BOE policy announcements and the market reaction.

BoE press conference key quotes

"If we maintain restrictive stance long enough, we will squeeze inflation out of the system."

"This means being on watch for more signs of inflation persistence that may require rates to rise again."

"We should not keep monetary policy restrictive for excessively long."

"We have to be mindful of balance of risks between doing too little and too much."

"How long restrictive stance will be needed depends on incoming data."

"There is a considerable way to go on quashing inflation."

"Events in the Middle East do create uncertainty, risk of higher energy prices."

---

This section below was published at 12:00 GMT to cover the Bank of England's monetary policy announcements and the initial market reaction.

The Bank of England (BoE) announced on Thursday that it left the policy rate unchanged at 5.25% following the November policy meeting. This decision came in line with the market expectation.

Policymakers voted 6-3 in favor of the decision. Greene, Haskel and Mann voted to raise rates by 25 basis points. In the policy statement, the BoE said that risks to inflation projections are still skewed to the upside, while noting that there was little news on inflation persistence since September.

Key takeaways from BoE Monetary Policy Report

"Inflation seen falling to 4.6% by Q4 2023 (Aug forecast: 4.93%)."

"Inflation seen first falling below 2% target in Q4 2025 (Aug: Q2 2025)."

"Inflation in one year's time at 3.1% (Aug forecast: 2.82%)."

"Inflation in two years' time at 1.9% (Aug forecast: 1.65%)."

"Inflation in three years' time at 1.5% (Aug forecast: 1.46%)."

"Market rates imply less BoE tightening than August, show bank rate at 5.3% in Q4 2023, 5.1% in Q4 2024, 4.5% in Q4 2025 (Aug: 5.8% in Q4 2023, 5.9% in Q4 2024, 5.0% in Q4 2025)."

"BoE forecasts CPI inflation of 4.8% in October 2023."

"Inflation to return to 2% target in two years' time based on constant 5.25% rates and mean forecast."

"BoE estimates GDP flat for Q3 2023 (Sept forecast: +0.1% QQ), sees +0.1% QQ in Q4 2023."

"BoE estimates GDP in 2023 +0.5% (Aug forecast: +0.5%), 2024 0% (Aug: +0.5%), 2025 +0.25% (Aug: +0.25%)."

"BoE estimates unemployment rate 4.3% in Q4 2023% (Aug: 4.1%); Q4 2024 4.7% (Aug: 4.5%); Q4 2025 5.0% (Aug: 4.8%)."

"BoE estimates wage growth +6.75% yy in Q4 2023 (Aug: +6%), Q4 2024 +4.25% (Aug: +3.5%); Q4 2025 2.75% (Aug: +2.5%)

Key takeaways from BoE policy statement

"MPC will ensure that bank rate is sufficiently restrictive for sufficiently long."

MPC considers wide range of labour data given ONS labour force survey issues."

"Employment growth likely softer in H2 2023 than previously forecast."

"Pay growth high but strong private sector regular earnings not apparent in other series."

"Only about half of impact of higher rates has been felt so far."

"Investors show rising conviction on higher-for-longer UK policy path."

Market reaction to BoE policy announcements

GBP/USD gathered bullish momentum with the immediate reaction. At the time of press, the pair was up 0.55% on the day at 1.2215.

---

This section below was published as a preview of the Bank of England's monetary policy announcements at 07:00 GMT.

• The Bank of England will announce its decision on monetary policy on Thursday. 
• The BoE is likely to keep the benchmark rate unchanged for a second consecutive meeting at 5.25%.
• The United States Federal Reserve left rates unchanged at 5.5%, offering relief to markets.
• Pound Sterling trades in a well-limited range against the US Dollar. 

The Bank of England's (BoE) Monetary Policy Committee (MPC) is meeting this week to decide the future of monetary policy and will announce its decision on Thursday, November 2. The central bank will publish the Monetary Policy Report alongside it, which offers the economic analysis and inflation projections that the MPC uses to make its interest rate decisions.

The BoE is expected to stand pat again after September’s meeting, when policymakers decided to keep the base rate on hold at 5.25% in a tight 5-4 vote. This is the highest level since 2008, and financial markets are still pricing a terminal rate of 5.5% by the start of 2024. Ahead of the event, the Pound Sterling trades near a multi-month low of 1.2037 against the US Dollar after a massive drop from July’s peak at 1.3141.

Bank of England interest rate decision: What to know in markets on Thursday

• GBP/USD is sitting at weekly highs as market players assess the Federal Reserve (Fed) monetary policy announcement.
• The BoE is watching three specific data figures on which it bases its policy decisions: private-sector wage growth, services inflation and the vacancy-to-unemployment ratio.
• Like most major central banks, the BoE also adopted the “higher for longer” stance based on keeping benchmark rates elevated for an extended period to tame inflationary pressures.
• Ahead of the announcement, the United Kingdom (UK) shop price inflation eased to 5.2% in October, its lowest rate in more than a year, helped by falling prices of homegrown food, according to the British Retail Consortium.
• The Consumer Prices Index (CPI) rose by 6.7% in the 12 months to September, the same rate as in August. On a monthly basis, CPI rose by 0.5% in September 2023, the same rate as in September 2022.
• Meanwhile, the world faces a new uncertainty factor from the Middle East. On October 7, the Palestinian group, Hamas, attacked Israel, leading the latter to declare war. The ground invasion of the Gaza Strip began over the weekend, with market participants keeping an eye on the situation.
• As widely anticipated, the Fed maintained rates at 5.5%. The announcement had a limited impact on financial markets, as the central bank offered a mixed message. Powell offered some hawkish lines, saying they are not considering rate cuts but questioning whether additional hikes are needed. He also noted policymakers are committed to achieving a sufficiently restrictive stance, but they can’t say at the moment if they have reached that point.  
• Early on Wednesday, the US Treasury announced upcoming auction sizes of $112 billion, slightly below the $114 billion anticipated by financial markets. The Treasury also announced plans to increase auction sizes one more time. The predictability of the announcement brought relief to the markets, while the Fed’s announcement fell short of spurring fresh concerns.

When will the BoE release its monetary policy decision and how could it affect GBP/USD?

The BoE is expected to keep the main rate on hold at 5.25% on Thursday, November 2. The decision will be announced at 12:00 GMT, alongside the release of the Minutes of the meeting and the Monetary Policy Report. Governor Andrew Bailey will then hold a press conference in which he will explain the background of policymakers’ decisions.

BoE Governor Andrew Bailey and his colleagues have little room to manoeuvre. The British economy is giving more and more signs of weakening, and the traces of recession returned even after the MPC expressed easing concerns on the matter. 

Nevertheless, taming inflation is the central bank’s main goal at the time being, while wage growth remains high. Average earnings in the three months through August surged 7.8% from a year earlier, according to the Office for National Statistics, moderating slightly, but still rising too quickly to be compatible with the central bank’s 2% inflation target.

Despite the disappointing August inflation figures, it seems unlikely that the MPC will hike rates this time. Data in between meetings has not brought significant change factors  to the table, so policymakers will likely remain on hold. However, the odds of one more rate hike in the upcoming months are quite high. Market participants still believe the central bank will maintain a mostly hawkish stance, as a 6.7% annual CPI does not align with a neutral stance.

Governor Bailey will likely note that the effects of previous rate hikes are yet to take effect on the economy to justify the on-hold decision. 

With the BoE foreseen adding little changes to the monetary policy, the chances of a sharp directional move are limited. Still, a hawkish surprise seems more likely than a dovish one. With the Greenback on the back foot, the pair can turn north with the first-tier event.

GBP/USD is challenging the weekly high near 1.2200, moving further away from the October monthly low of 1.2037. According to Valeria Bednarik, FXStreet.com’s Chief Analyst, “GBP/USD  has a long way to go before turning bullish. Despite the lack of US Dollar momentum, the pair would need to run past the October 24 peak at 1.2288 to convince buyers.” 

Bednarik adds: “Technically, the risk skews to the downside according to the daily chart. A flat 20 Simple Moving Average (SMA) at around 1.2180 has been scaled, while the longer moving averages are directionless, although over 300 pips above the current level. The same chart shows that the Momentum indicator advances within negative levels, while the Relative Strength Index (RSI) indicator stands pat at around 44. The pair has been steadily meeting buyers on slides below the 1.2100 mark, a near-term support level. Once below 1.2069, however, sellers may seize control of GBP/USD.”