At a peak? Bank of England makes 5-to-4 vote to pause interest rates

The Bank of England unanimously decided to reduce its portfolio of U.K. government bonds by £100 billion over the next 12 months.

Inflation data released Wednesday showed the consumer price index for August at 6.7% year-over-year, still well above the central bank’s 2% target but lower than economist forecasts. Importantly, both the core measure that excludes food and energy, as well as services inflation, declined as well.

“There are increasing signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally. Given the significant increase in Bank Rate since the start of this tightening cycle, the current monetary policy stance is restrictive,” said the bank.

The pound
GBPUSD,
-0.67%
fell sharply after the decision, while the yield on the 2-year gilt
BX:TMBMKGB-02Y
was higher on the day.

Read: Sterling hits six-month trough as Bank of England stands pat

“Undoubtedly, the overriding factor behind the Bank’s decision has been the fall in the UK’s inflation rate in August, particularly the sharp drop in underlying price pressures which indicate that earlier rate increases are beginning to work,” said Jeremy Batstone-Carr, European strategist at Raymond James.

“Moreover, the economy’s weakness in July means that activity over the third quarter has been revised downwards, below the Bank’s previous expectation. This is a clear sign that inflationary pressures, including wage pressures, will continue to abate over the autumn months,” he added.

Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, said the U.K. may have reached a peak in rates.

Earlier, the central banks of both Sweden and Norway lifted interest rates.

The Swiss National Bank however paused, at 1.75%, sending the dollar
USDCHF,
+0.77%
up vs. the Swiss franc.