Market News

By William Schomberg, David Milliken and Suban Abdulla

LONDON, Nov 6 (Reuters) - The Bank of England kept borrowing costs on hold on Thursday but a narrow vote and signs that Governor Andrew Bailey might soon join those seeking a rate cut keeps the door open for a move after the government's budget later this month.

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Mindful of Britain's still high headline inflation rate, the nine-strong Monetary Policy Committee voted 5-4 to keep the central bank's benchmark Bank Rate at 4.0%, the BoE said.

Most economists polled by Reuters last week had predicted a 6-3 decision by the MPC to leave Bank Rate unchanged.

While Bailey was among those who decided to keep borrowing costs unchanged, he was the only one of the five who felt that overall inflation risks had moved down. However, he felt there was "value in waiting for further evidence" of this in upcoming economic developments this year, the BoE said.

BOE SAYS UK INFLATION HAS PEAKED

Britain's inflation of 3.8% remains the highest among the Group of Seven major advanced economies and the BoE's benchmark interest rate is double the European Central Bank's, adding to the challenge for the government to speed up the economy.

However, inflation unexpectedly held steady in September and recent jobs data has also hinted at weakening price pressures. The MPC said it believed inflation had peaked and would fall in data for October and November as weaker economic growth and a worsening jobs market took their toll on demand. "We still think rates are on a gradual path downwards, but we need to be sure that inflation is on track to return to our 2% target before we cut them again," Bailey said. Thursday's decision represented the first pause in the BoE's already-gradual, once-every-three-months pace of rate cuts which started in August 2024. The BoE forecast that inflation would remain above its 2% target until the second quarter of 2027 - the same as in August - although it did forecast inflation would be slightly lower then, at 1.9%, and also flagged the weakness in the jobs market.