LONDON (AP) – The Bank of England kept its main interest rate unchanged at five per cent yesterday despite a big cut from the United States Federal Reserve (Fed), 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 around 80 per cent of the British economy. Figures on Wednesday showed that inflation overall in the United Kingdom (UK) held steady at an annual rate of 2.2 per cent in August, still above the bank’s goal.
Minutes to the meeting showed that eight of the nine members of the panel voted to keep rates unchanged, while one backed a quarter-point reduction.
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 October 30.
On Wednesday, the Fed cut its main interest by half of a percentage point to roughly 4.8 per cent from a two-decade high of 5.3 per cent, where it had stood for 14 months. It also signalled that there will be more cuts to come in the next few months.
Central banks around the world dramatically increased borrowing costs from near zero during the COVID-19 pandemic when prices started to shoot up, first as a result of supply chain issues built up which pushed up energy costs. As inflation rates have fallen from multi-decade highs recently, they have started cutting interest rates.
On Wednesday, the Fed became the latest major central bank to reduce borrowing costs, cutting its main interest by half of a percentage point to roughly 4.8 per cent from a two-decade high of 5.3 per cent, where it had stood for 14 months. It also signalled that there will be more cuts to come in the next few months.
The new Labour government has said that it needs to plug a GBP22 billion (USD29 billion) hole in the public finances and has indicated that it may have to raise taxes and lower spending, which would likely weigh on the near-term outlook for the British economy and put downward pressure on inflation.
