Bank of England keeps key interest rate on hold as it warns of “elevated uncertainty” – National
Britain’s central bank warned on Thursday of “increasing uncertainty” in its holdings interest rates then put on hold inflation Even at a time when Britain’s economy was flat at best, it raised the target even higher.
The Bank of England’s nine-member Monetary Policy Committee left the key interest rate unchanged at 4.75%, and new data showed inflation had risen to 2.6%, well above the bank’s 2% target.
In response, the rate-setting panel, which last cut its key rate in November, is taking a cautious stance as lower borrowing costs could potentially push up inflation further.
The decision was widely expected in financial markets but came as a surprise as three of the members voted for a quarter-point cut. This could point to further tapering at the next policy meeting in February, unless there are big inflation surprises.
“We need to make sure we hit the 2% inflation target on a sustained basis,” said Bank Governor Andrew Bailey, who voted to keep interest rates on hold. “We believe a phased approach to future rate cuts is appropriate, but due to increased uncertainty in the economy, we cannot commit to when or by how much we will cut rates next year.”
Struggling sectors of the UK economy and landlords are hoping for more cuts next year, which will provide some relief. The British economy has contracted for two months in a row.
Suren Thiru, the institute’s director of economics, said: “While the Bank’s decision to hold interest rates is expected, it will be a clear blow to households still struggling with heavy mortgage debt and to businesses facing a spike in spending after the autumn budget.” Accountants in England and Wales.
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The bank’s decision came a day after the US Federal Reserve cut interest rates, but Chairman Jerome Powell signaled the Fed would slow the pace of rate cuts after revising its inflation forecasts.
Minutes of the Bank of England’s decision show rate-setters warned about the economic outlook in light of the new Labor government’s first budget and the results of the US presidential election.
Critics argue that the October budget both raised inflationary pressures and stunted growth. A big increase in business taxes could prompt companies to offset higher costs by raising prices or cutting back on hiring. The government argues that it should have raised taxes to shore up public finances and inject money into cashless public services.
With Donald Trump back in the White House in January, there is uncertainty over whether the incoming US administration will impose tariffs on imports, an economic strategy that could trigger a sharp response that boosts inflation and lowers growth.
Still, inflation in the UK and around the world is much lower than it was a few years ago, partly because central banks pushed borrowing costs close to zero, primarily on supply, when prices started to rise during the coronavirus pandemic. chain problems and then increased energy costs due to Russia’s large-scale invasion of Ukraine.
As inflation rates have fallen from their highest levels in decades, central banks have begun to cut interest rates, although few economists believe interest rates will return to the super-low levels seen in the years since the 2008 global financial crisis. 2009.
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