The Bank of England halted its long run of interest rate increases today as the British economy slowed, but it said it was not taking a recent fall in inflation for granted.
A day after a surprise slowing in Britain's fast pace of price growth, the Bank of England's Monetary Policy Committee voted by a narrow margin of 5-4 to keep Bank Rate at 5.25%.
Four members - Jon Cunliffe, Megan Greene, Jonathan Haskel and Catherine Mann - voted to raise rates to 5.5%.
It was the first time since December 2021 that the Bank of England did not increase borrowing costs.
"There are increasing signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally," the MPC said in a statement.
It cut its forecast for economic growth in the months from July to September to just 0.1% from August's forecast of 0.4% and noted clear signs of weakness in the housing market.
Growth for the rest of the year was likely to be weaker than previous forecasts, the Bank of England said.
Record growth in workers' pay, which has been a big concern for the central bank, was not backed up by other measures of the labour market, it noted.
This suggests that the Bank of England's policymakers expected it to slow down soon.
"CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices," the bank said.
But it said services inflation was expected to remain elevated.
The Bank of England's decision to pause its rate hikes came a day after the US Federal Reserve also opted to keep borrowing costs on hold. Last week, the European Central Bank raised rates but suggested it might be the last for now.
The MPC reiterated its message that it was prepared to raise borrowing costs again if needed.
"Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures," the statement said.
It also repeated the guidance that monetary policy would be "sufficiently restrictive for sufficiently long" to get inflation back to its 2% target from 6.7% in August.
Governor Andrew Bailey and other MPC members have recently suggested the Bank of England was close to pausing its run of interest rate increases but they have also stressed that borrowing costs are likely to remain high to ensure inflation pressures are squeezed out of the economy.
In a separate statement today, Bailey welcomed the recent fall in inflation and Bank of England forecasts that it would continue to ease.
"But there's no room for complacency," he said. "We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that."
The MPC agreed to speed up the pace of its programme to shrink the massive stockpile of government bonds that the central bank acquired over the past decade and a half as it sought to steer the economy through the global financial crisis and the coronavirus pandemic.
As investors had widely expected, the stockpile will be reduced by £100 billion over the next 12 months - by a combination of sales and allowing bonds to mature - to a total of £658 billion, the Bank of England said, faster than the £80 billion reduction over the past year.
Bank of England Governor Andrew Bailey also said today that cutting interest rates wouldbe "very, very premature" and that rate-setters had not discussed doing so.
Mr Bailey, speaking to reporters after the Bank of England left interest rates on hold at 5.25%, said he would not predict what the central bank's next move would be.
"I can tell you that we have not had any discussion on the Monetary Policy Committee about reducing rates because that would be very, very premature," he said.
