The Bank of England yesterday kept its main interest rate unchanged at 5 percent despite a big cut from the US Federal Reserve, its first since the onset of the COVID-19 pandemic more than four years ago.
The decision was widely expected amid ongoing concerns about inflation within the bank’s monetary policy committee, particularly the elevated levels in the crucial services sector, which accounts for about 80 percent of the UK economy. Figures on Wednesday showed that inflation overall in the UK held steady at an annual rate of 2.2 percent last month, still above the bank’s goal.
Minutes of the meeting showed that eight of the nine members of the panel voted to keep rates unchanged, while one backed a quarter-point reduction.
Photo: Reuters
“The economy has been evolving broadly as we expected. If that continues, we should be able to reduce rates gradually over time,” Bank of England Governor Andrew Bailey said.
“However, it’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much,” he said.”
The bank, which last month cut interest rates for the first time since the pandemic, is widely expected to reduce borrowing costs again at its next meeting in November, especially as it will have details of the government’s budget on Oct. 30.
On Wednesday, the Fed cut its main interest by half a percentage point to roughly 4.8 percent from a two-decade high of 5.3 percent, where it had stood for 14 months. It also signaled that there would be more cuts to come in the next few months.
Central banks around the world dramatically increased borrowing costs from near zero during the pandemic when prices started to shoot up, first as a result of supply chain issues and then because of Russia’s full-scale invasion of Ukraine, which pushed up energy costs. As inflation rates have fallen from multi-decade highs recently, they have started cutting interest rates.
Although yesterday’s decision by the UK could be seen as bad news for borrowers, they should get some relief over the coming months, with most economists predicting that the bank would reduce its main rate to about 3.5 percent by the end of next year, with a consequent reduction in the cost of personal loans and mortgage rates.
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