The Bank of England left interest rates unchanged at 4.75 per cent on Thursday, but the City expects another quarter point increase before the year is out.
The Bank's decision to stay its hand was forecast by economists, but a recent Reuters poll showed almost unanimity in the belief that the cost of borrowing will hit 5 per cent in November.
Recent data were evidently sufficiently benign for the Bank's monetary policy committee to dismiss the need for an immediate rise.
However, implicit in the Bank's forecasts is the need for further monetary tightening to bring inflation back in line with its 2 per cent target. Consumer price inflation is currently 2.5 per cent and is expected to spike higher over coming months as utility bills and tuition fees make an impact.
Pressure for an increase in rates has come from signs that the economy is growing at or slightly above trend. Strong numbers on services from both the CBI and the survey of purchasing managers, have shown the biggest sector of the economy is in robust health.
There is also evidence that manufacturers are continuing to benefit from a fairly buoyant global economy, particularly from an upturn in the eurozone.
The housing market has also shown little sign that the last surprise hike in interest rates in August has crimped demand, and the resulting feelgood factor in turn has helped bolster consumer spending.
On the other hand, while growth remains healthy, final data on the economy saw second quarter expansion revised down slightly from 0.8 per cent to 0.7 per cent. There was also a sharp downward revision to the GDP deflator, a measure of inflation in the economy.
John Butler at HSBC in a note to clients this week said: "On our estimates the combined purchasing managers' index is consistent with quarterly GDP growth of between 0.7 and 0.8 per cent in Q3, which is marginally lower than the 0.9 -1.0 per cent estimate implied in the MPC's central projection at the time of the August Report."
The MPC may also have wanted to give itself more time to assess the effects of a sharp fall in energy prices over the past month. Allan Monks at at JPMorgan Chase Bank has noted that Brent crude dropped below $58 a barrel this week and has consequently reduced his forecast for inflation to peak in December from 3 per cent to 2.8 per cent.
George Buckley at Deutsche Bank predicted the Bank would move in November and explained why it had been prepared to wait.
The MPC will not have been privy to the the September consumer price index data at Thursday's meeting, noted Mr Buckley. However by the time its gathers for the November discussion the committee will have seen both the September and October inflation numbers.
In addition, the MPC more often changes rates in months that coincide with the publication of the quarterly inflation report, with the next in November. Finally, GDP data for the third quarter are published in mid-October.
"A big question mark still hangs over whether the Bank will need to raise rates again this cycle. We think that they will, but a November move will hinge on an above-trend Q3 growth reading - i.e. 0.7 per cent quarter-on-quarter or higher), inflation picking back up again in October and an inflation forecast which suggests the need for a further move, " said Mr Buckley.
"We expect these stars to be aligned again by the time of the November meeting, but it is far from a foregone conclusion."
Source: Financial Times