Britain’s central bank on Thursday warned of “increasing uncertainty” as it kept interest rates unchanged after inflation rose more than target, even as Britain’s economy is stable at best.
The Bank of England’s nine-member Monetary Policy Committee kept its key interest rate unchanged at 4.75%, as new data showed inflation rising to 2.6%, above the bank’s 2% target.
In response, the rate-setting committee, which last cut its key rate in November, is taking a cautious stance as lower borrowing costs could lead to higher inflation.
The decision was widely expected in financial markets, but surprisingly as many as three members voted in favor of a quarter-point cut. This could signal further easing at the next policy meeting in February if there are no major inflationary surprises.
“We need to make sure we achieve the 2% inflation target on a sustainable basis,” said Bank Governor Andrew Bailey, who voted to keep interest rates unchanged. “We believe that a gradual approach to future rate cuts remains valid, but with increasing uncertainty in the economy we cannot commit to when or how much we will cut rates next year.”
Struggling sectors of the UK economy and homeowners are hoping further cuts next year will provide some relief. The British economy has now contracted for two months in a row.
“The bank’s decision to keep interest rates unchanged, although expected, will still come as a clear blow to households struggling with burdensome mortgage bills and businesses facing a jump in costs after the autumn budget,” said Suren Thero, director of economics at the institute. Chartered Accountants in England and Wales.
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The bank’s decision comes a day after the US Federal Reserve lowered interest rates, but its Chairman Jerome Powell indicated that the Fed will slow the pace of interest rate cuts in the future after adjusting inflation expectations upward.
Minutes of the Bank of England’s decision show that interest rate setters were cautious about the economic outlook in the wake of the new Labor government’s first budget and the results of the US presidential election.
Critics say the October budget increased inflation pressures while weakening growth. A large increase in business taxes may prompt companies to offset higher costs by raising prices or cutting employment. The government says it needs to raise taxes to shore up public finances and pump money into cash-starved public services.
With Donald Trump returning to the White House in January, there is uncertainty about whether the incoming US administration will impose tariffs on imports, an economic strategy that could trigger a tit-for-tat of higher inflation and lower growth.
However, inflation in the UK and around the world is much lower than it was two years ago, partly because central banks dramatically increased borrowing costs from almost zero during the coronavirus pandemic when prices started to rise, first as a result of supply. Multiple issues then due to the large-scale Russian invasion of Ukraine which led to rising energy costs.
As inflation rates decline from multi-decade highs, central banks have begun to cut interest rates, although few, if any, economists believe interest rates will fall to the ultra-low levels that persisted in the years following the global financial crisis in 2008. 2009.
& Edition 2024 The Canadian Press
