The sooner elevated energy costs recede, the better. If the war-driven increase in crude and refined products sticks around for too long, it could find its way into “other consumer goods prices through firms’ supply chains.”

That was the overarching message from the Bank of England, which on Thursday held rates steady in a 6-3 decision that mirrored the July split.

The BoE, which executed 14 rate hikes from late-2021 through the summer of 2023 as the UK struggled with the fallout from the war in Ukraine and rolling bouts of acute political dysfunction, said Thursday there’s “been little evidence so far of material second-round effects in price and wage-setting” from the latest energy crisis.

As the figure above reminds you, the BoE unwound 150bps of the total tightening delivered during the hiking cycle in a succession of tedious cuts. The MPC’s been on hold since late last year.

Thursday’s hold makes the bank an outlier: The ECB hiked last week, the Fed on Wednesday and the BoJ will hike on Friday. But you need a little context. Allow me to briefly recappitulate.

The onset of the Mideast conflict compelled an abrupt about-face on the MPC. In February, the BoE was one vote away from cutting rates again and said inflation would likely slip back below target soon. “There should be scope for some further reduction in bank rate this year,” Andrew Bailey said at the time. Then came the war.

The MPC pivoted the very next month, voting unanimously to keep rates on hold. Unanimity isn’t something you see a lot from the BoE. That decision, on March 19, might’ve been the most hawkish hold in the history of holds, and it triggered all manner of fireworks at the UK front-end. Subsequently, the bank forecast an upturn in inflation, owing primarily to the war.

So, the BoE’s not “dovish” here by holding rates. They pivoted from likely cuts in February to a unanimous hold the very next month and since then, there have been dissents for hikes, including on Thursday.

The figure above gives you a sense of where the UK is on the inflation front: Headline price growth’s running north of 3% again, services CPI never dropped below 3% and core’s been stuck at 2.6% for four straight months.

Current levels aren’t intolerable, exactly, but the UK arguably got the worst of the 2020s’ macro shocks among advanced economies. And the domestic political environment’s been a circus for a decade now. The BoE’s supposed to act as a bastion of stability. So, the lingering inflation overshoot’s a blight, particularly given the bank operates on a single-mandate.

“Overall, the Committee judges that the risks to the inflation outlook are tilted to the upside, and more so than at the time of the July Monetary Policy Report, although there remains scope for the outlook to change materially as events in the Middle East unfold,” the new statement said, adding that the MPC “stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium-term.”

In the addendum to the rates decision setting out the plan for QT over the next 12 months, the MPC said it’ll wind down its QE gilt portfolio to zero within eight years through a combination of £20 billion in annual sales and passive rolloff. As discussed here earlier this week, the bank did indeed decide to stop active sales of longer-dated gilts in a bid to help cap long-end yields.

Here’s how this’ll work: £222 billion of government bonds maturing between now and 2035 will be allowed to run off “naturally,” £146 billion maturing between 2035 and 2049 will be sold to Treasury at a clip of £20 billion a year and the remaining £120 billion of long-dated gilts in the bank’s portfolio will “indirectly back current and future banknote issuance.”

The end result: The BoE’s ~£490 billion gilt portfolio will be fully unwound by 2034.