The Bank of England kept interest rates on hold at 4% after a knife-edge vote that exposed a growing appetite for cuts among rate-setters. The decision by the Monetary Policy Committee (MPC) passed by just five votes to four, with Governor Andrew Bailey casting the deciding vote to maintain the current level.
Four members – Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor – voted for a quarter-point reduction to 3.75%.
The MPC said in its statement that it judges that inflation has "peaked" and that underlying price pressures are easing, citing weaker pay growth, slower services inflation and signs of slack in the labour market.
It added that monetary policy is at a level that aims to bring inflation back to the 2% in a sustainable manner, but that “more evidence is needed” before acting.
That points to a possible move at one of the next meetings, on 18 December or 5 February.
Financial markets reacted calmly to what was an expected outcome, with the tone and wording of the statement the important factors.
Gilt yields edged lower, sterling rose 0.25% against the dollar to bounce off recent eight-month lows, and the FTSE 100 briefly pared losses before slipping again as traders digested the narrow result.
Economists described the decision as finely balanced.
Deutsche Bank’s Sanjay Raja said there were "no fireworks on Threadneedle Street today... But this was no ordinary decision.
"Today’s decision was tighter than expected with four members pushing for a cut, with Governor Bailey’s deciding vote tilting the decision."
He felt that the MPC was "putting more weight on downside risks to growth", a major shift from the August decision, but maintained that rates would move gradually in a downward direction.
Raja expects next month's meeting will see a rate cut.
Rob Wood at Pantheon Macroeconomics agreed, saying his team was comfortable sticking to its previous call for a December cut, though the MPC statement "left the option to wait until February open".
Economists noted that Bailey said, rather than cutting rate now "would prefer to wait and see if the durability in disinflation is confirmed in upcoming economic developments this year".
Wood noted that Bailey's emphasis was on getting one more month of jobs and inflation data in order to see another rate cut this year.
John Wyn-Evans, head of markets at Rathbones, said: “Unlike the US Federal Reserve’s recent hawkish cut, today’s decision could be described as a dovish hold" as inflation risks are more balanced and a strong feeling that "more rate cuts are on the way, barring a shock".
Neil Wilson at Saxo said while the MPC seemed to be arguing that it was “best to wait until after the Budget before moving” he questioned this logic, given evidence that tax measures could slow the economy further.
"The Bank must be acutely aware of a big fiscal drag on the economy contained within the Budget and could get ahead of an inevitable slowdown," he said.
"And unlike last year's Budget the tax hikes being dreamed up will be more broad-based and disinflationary, which makes it a simpler equation for the Bank."