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The Bank of England has kept interest rates on hold at 5.25 per cent for the second successive meeting and warned monetary policy will need to stay restrictive for “an extended period of time” despite a bleak economic outlook.

The Monetary Policy Committee voted six to three to keep its benchmark rate unchanged at 5.25 per cent, as had been widely expected. A minority of members sought a further quarter-point increase.

The MPC’s vote to maintain rates at 5.25 per cent came after decisions to keep rates on hold by the US Federal Reserve on Wednesday and the European Central Bank last week. Those stances have bolstered investors’ confidence that the global rate rise cycle may have reached its peak.

London’s benchmark FTSE 100 and the mid-cap FTSE 250 rose 1.1 per cent and 3.1 per cent respectively in anticipation of the BoE’s decision, with interest rate-sensitive real estate groups among the biggest winners.

BoE governor Andrew Bailey said the MPC would be watching “closely” to see if further rate rises were needed, adding “it’s much too early to be thinking about rate cuts”.

But new forecasts from the central bank show it is treading a delicate line as it seeks to beat inflation while not pushing a weakening UK economy into an outright recession in 2024 — which is expected to be an election year.

UK interest rates are at their highest levels since the financial crisis, as the bank weighs evidence of weak growth against consumer price inflation of 6.7 per cent.

As investors bet that real estate companies would benefit from an end to rate rises, shares in the FTSE 250-listed lender OSB Group rose 13.3 per cent, while FTSE 100 developer Segro jumped 6.1 per cent. Land Securities added 5.7 per cent and Barratt Developments gained 3.5 per cent. 

Sterling edger higher after the BoE announcement, up 0.4 per cent on the day against the dollar at $1.22.

Two-year gilt yields, which move in line with interest rate expectations, fell 0.06 percentage points on the day as global markets pared back expectations of future interest rate rises. 

Swaps markets continue to price in the first BoE cut for August or September next year.

Additional reporting by George Steer and Mary McDougall

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