The Bank of England holds interest rates at 5.25%, warning that rates will remain high to tackle inflation. The decision was made after a surprise fall in inflation in August. The MPC voted to halt the cycle of rate hikes.
Four senior Bank of England members, including outgoing deputy governor Jon Cunliffe, were outvoted in pushing for a quarter-point rise in interest rates. Three independent economists advocated for tougher action to bring inflation back to sustainable levels. The governor, Andrew Bailey, voted for a hold. Inflation has fallen in recent months, but there is no room for complacency. The Bank will continue to take necessary decisions to ensure inflation returns to normal levels.
The Bank of England kept interest rates unchanged, expected to prevent inflationary pressures. Markets had priced in a quarter-point increase. The pound fell to its lowest level since March.
UK interest rates remain unchanged for the first time since November 2021. The Bank of England recently embarked on a tough rate-hiking cycle. The economy is expected to grow slightly in the third quarter and have weaker underlying growth in the second half of the year.
UK inflation unexpectedly fell to 6.7% in August due to a cooling jobs market and weaker economic activity. Central banks around the world are nearing the end of their rate-hiking cycle due to the Covid pandemic and Russia’s war in Ukraine. UK inflation is expected to take until 2025 to return to the Bank of England’s 2% target. The MPC will need to keep interest rates restrictive for a long time to ensure sustained inflation.
The Bank of England’s Monetary Policy Committee (MPC) left the door open to raise interest rates again to tackle inflation. The split on the MPC reflected uncertainty over the future strength of growth. Cunliffe’s decision to vote against his colleagues is unusual. Millions of mortgage holders are yet to refinance from cheaper deals agreed before the Bank started raising borrowing costs.
The Bank of England’s deputy governor and independent economists voted to leave interest rates on hold, while Swati Dhingra voted with the majority. The bank increased the sale of UK government bonds held on its balance sheet from £80bn to £100bn due to its quantitative easing program. The policy was used to support jobs and growth after the 2008 financial crisis, Brexit, and during the pandemic. The deputy governor will leave the committee after his final term.