BoE freezes rate, rules out cuts any time soon
The decision by the Bank of England to hold interest rates steady comes as Britain continues to face a cost-of-living crisis and the Israel-Hamas war threatens to send energy prices higher again
London – The Bank of England on Thursday held its key interest rate at 5.25 percent, a day after the Federal Reserve also froze borrowing costs as global inflation retreats.
The BoE had already kept its rate steady at the central bank’s previous monetary policy meeting in September, snapping a streak of 14 hikes in a row.
However, the UK interest rate remains the highest in more than 15 years, with the nation’s annual inflation the most elevated among G7 rich nations.
– ‘Too early’ to cut –
Governor Andrew Bailey said it was “much too early” to think about cutting rates. Bailey joined five policymakers in voting for a pause.
But the three others called for a hike to 5.5 percent.
“We’ve held rates unchanged this month, but we’ll be watching closely to see if further rate increases are needed,” Bailey added in a statement.
This even as the BoE on Thursday forecast the UK economy to flatline next year, down from its prediction in August for growth of about 0.5 percent in 2024.
The latest BoE announcements come amid a lingering UK cost-of-living crisis as oil prices rally on the Israel-Hamas war.
On Wednesday, the Federal Reserve left US interest rates at a 22-year high for a second straight meeting as it moved to slow stubbornly-high inflation without damaging a robust US economy.
In a widely expected decision, the Fed kept the benchmark lending rate between 5.25 percent and 5.50 percent.
The European Central Bank last week left eurozone borrowing costs unchanged after raising them in each of its previous 10 meetings.
“Several central banks… have reached the point where they are likely hoping that rates have peaked — but they are simultaneously wary that sticky inflation could force them to take further action,” Rabobank analyst Jane Foley told AFP.
The BoE began lifting its main interest rate from a record low of 0.1 percent at the end of 2021, when inflation started to creep higher as economies slowly emerged from Covid-19 lockdowns.
UK inflation subsequently rose to a 41-year peak at 11.1 percent in October 2022, stoked by spiking energy prices after the invasion of Ukraine by major oil and gas producer Russia.
It has since dropped to 6.7 percent, but remains higher than inflation in neighbouring France, Japan and the United States.
It is also more than three times the BoE’s target level of two percent.
Britons are still struggling to pay bills and the country has been blighted by months of major strikes by workers across its public and private sectors.
Rate hikes have worsened the situation because retail banks follow suit by hiking the cost of repayments on mortgages and other loans.