Britain's central bank warned on Thursday that “higher uncertainty” as it persists. Interest rate On hold after Inflation went further than the target, even at a time when the British economy is performing at its best.
The Bank of England's nine-member monetary policy committee kept its key interest rate at 4.75% with new data showing inflation rising to 2.6%, 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 surprisingly, as many as three members voted in favor of a quarter-point cut. If there are no major inflation surprises, this could signal further tapering at the next policy meeting in February.
“We need to make sure we hit the 2% inflation target on a sustained basis,” said Bank Governor Andrew Bailey, who voted to keep rates on hold. “We believe that a gradual approach to future interest rate cuts is appropriate, but with the growing uncertainty in the economy we cannot commit to when and by how much we will cut rates in the coming year. “
Struggling sectors of the UK economy and homeowners are hoping further cuts next year will bring some relief. The British economy has now contracted for two months in a row.
“The Bank's decision to keep interest rates on hold, as expected, comes as households still struggle with heavy mortgage bills and face rising spending after the autumn budget,” said Soran Thero, director of economics at the institute. There will be a clear blow to businesses that do.” of Chartered 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 Chair Jerome Powell signaled that the Fed would further slow the pace of rate cuts after revising its inflation forecasts.
Minutes of the Bank of England's decision show that rate-setters have 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 added to inflationary pressures while downplaying growth. Large increases in business taxes could force companies to cover higher costs by raising prices or cutting jobs. The government argues that it needs to raise taxes to boost public finances and pour money into cash-strapped public services.
And with Donald Trump's return to the White House in January, there is uncertainty over whether the incoming US administration will impose tariffs on imports, an economic strategy that stokes inflation and slows growth.
Still, inflation in the UK and around the world is far lower than it was a few years ago, partly because central banks dramatically increased the cost of borrowing to near zero during the coronavirus pandemic when prices rose. started, first as a result of supply. Due to chain issues and then Russia's full-scale invasion of Ukraine, which drove up energy prices.
As inflation has fallen from multi-decade highs, central banks have begun to cut interest rates, although few, if any, economists believe rates will return to extremely low levels. which persisted in the years following the 2008 global financial crisis. 2009.
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