Bank of England holds key rate as it warns of ‘increased uncertainty’ – National

Britain’s central bank warned of “increased uncertainty” on Thursday as it held interest rate on hold later inflation moved further above the target, even at a time when Britain’s economy is flattening at best.

The Bank of England’s nine-member Monetary Policy Committee kept its main interest rate unchanged at 4.75%, with new data showing inflation rising to 2.6%, still higher than the bank’s 2% target.

In response, the rate-setting panel, which last cut its benchmark rate in November, is taking a cautious stance because lower borrowing costs could further fuel inflation.

The decision was widely expected in financial markets, but surprisingly, up to three of the members voted in favor of a cut of a quarter of a point. This could signal further tapering at the next policy meeting in February if there are no major inflationary surprises.

“We need to make sure we hit the 2% inflation target on a sustained basis,” said Bank of England Governor Andrew Bailey, who voted to keep rates on hold. “We believe a gradual approach to future interest rate cuts remains appropriate, but with 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 home owners are expecting more cuts next year that will provide some relief. The UK economy has now contracted for two consecutive months.

“The Bank’s decision to keep interest rates on hold, while expected, will still be a palpable blow to households struggling with onerous mortgage bills and businesses facing a jump in costs after of the autumn budget,” said Suren Thiru, director of economics at the Institute. of Chartered Accountants of England and Wales.

The bank’s decision comes a day after the U.S. Federal Reserve cut interest rates, but Chairman Jerome Powell signaled that the Fed would slow the pace of rate cuts in the future after inflation forecasts reviewed above.

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The minutes of the Bank of England’s decision show that rate-setters warned about the economic outlook in the wake of the new Labor government’s first budget and the outcome of the US presidential election.

Critics argue that the October budget has increased inflationary pressures while slowing growth. A large increase in business taxes may lead companies to offset the higher costs by raising prices or reducing hiring. The government argues that it had to raise taxes to shore up public finances and inject money into cash-strapped public services.

And with Donald Trump returning to the White House in January, there is uncertainty over whether the incoming U.S. administration will impose tariffs on imports, an economic strategy that could lead to an opportunistic response that spurs inflation and lowers the growth

Even so, inflation in the UK and around the world is much lower than it was a couple of years ago, partly because central banks dramatically increased borrowing costs from near zero during the coronavirus pandemic, when prices began to soar, first as a result of supply. chain problems and then due to Russia’s full-scale invasion of Ukraine which increased energy costs.

As inflation rates have fallen from multi-decade highs, central banks have begun cutting interest rates, although few, if any, economists think rates will return to levels very low that persisted in the years following the global financial crisis of 2008. 2009.

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