LONDON (AP) – The Bank of England kept borrowing rates unchanged yesterday despite mounting worries over the state of the British economy, and it showed little sign that it is contemplating cutting them anytime soon – unlike the United States (US) Federal Reserve (Fed).
The central bank left its main interest rate at a 15-year high of 5.25 per cent, where it has stood since August following the end of nearly two years of hikes. Six of the nine members of the Monetary Policy Committee voted to keep rates on hold while three wanted a quarter-point hike.
While the interest rate increases have helped in the battle against inflation, the squeeze on consumer spending, primarily through higher mortgage rates, has weighed on British economic growth.
On Wednesday, the US Fed also kept rates on hold. The European Central Bank (ECB), which sets policy for the 20 European Union countries that use the euro currency, is expected to do the same. The Fed also signalled that it expects to make three interest rate cuts next year, while market expectations also foresee cuts by the ECB.
But that looks a ways off for the Bank of England. In its statement yesterday, the bank said monetary policy would need to be “sufficiently restrictive for sufficiently long to return inflation to the two- per-cent target sustainably in the medium term”.
Holding that high rate follows two years of hikes that targeted a surge in inflation, first stoked by supply chain issues during the coronavirus pandemic and then Russia-Ukraine conflict, which pushed up food and energy costs.
The Bank of England has managed to get inflation down from a four-decade high of over 11 per cent – but there’s still a ways to go for it to get back to its two per cent target.
Inflation, as measured by the consumer price index, stood at 4.6 per cent in the year to October, still too high for comfort.
High interest rates and low economic growth are hardly the ideal backdrop for the governing Conservative Party in next year’s general election, which opinion polls suggest it will lose to the main opposition Labour Party.
