The British central bank continued to warn of “increased uncertainty” on Thursday. Interest rates then in the queue inflation The figure remains above target, even at a time when the UK economy is stagnant at best.
The Bank of England’s nine-member monetary policy committee left its key interest rate unchanged at 4.75%, with new data showing inflation rose to 2.6%, further above the bank’s 2% target.
In response, the interest rate setting body, which last cut its key interest rate in November, is taking a cautious stance as lower borrowing costs could potentially fuel inflation even further.
The decision was widely expected in financial markets, but surprisingly even three members voted for a quarter-point cut. This could point to further tapering at the next policy meeting in February, barring any major inflation surprises.
“We need to ensure we achieve the 2% inflation target on a sustained basis,” said Bank Governor Andrew Bailey, who voted to keep interest rates unchanged. “We believe a phased approach to future rate cuts remains the right one, but given the increased uncertainty in the economy, we cannot commit to when or by how much we will cut rates in the coming year.”
The struggling sectors of the UK economy and homeowners are hoping further cuts next year would provide some relief. The British economy has now contracted for the second time in a row.
“The bank’s decision to leave interest rates unchanged, while expected, will still be a noticeable blow to households struggling with onerous mortgage bills and to businesses facing a jump in costs following the autumn budget,” Suren said Thiru, Economic Director of the Institute of Chartered Accountants of England and Wales.
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The bank’s decision comes a day after the Federal Reserve cut interest rates. However, Chairman Jerome Powell has signaled that the Fed will slow the pace of rate cuts going forward after upgrading inflation forecasts.
Minutes of the Bank of England’s decision show that rate setters were cautious about the economic outlook given the new Labor government’s first budget and the outcome of the US presidential election.
Critics argue that October’s budget has both increased inflationary pressures and dampened growth. A sharp increase in corporate taxes could prompt companies to offset higher costs by raising prices or cutting staff. The government argues that it needs to raise taxes to shore up public finances and put money into scarce public services.
And with Donald Trump returning to the White House in January, there is uncertainty over whether the new U.S. administration will impose tariffs on imports, an economic strategy that could lead to a backlash that fuels inflation and weakens growth.
Still, inflation in the UK and around the world is far lower than it was just a few years ago, partly because central banks have dramatically raised borrowing costs from near zero during the coronavirus pandemic, when prices initially fell due to the Supply began to skyrocket, chain problems began, and then Russia’s full-scale invasion of Ukraine, which drove up energy costs.
As inflation rates have fallen from decade-long highs, central banks have begun cutting interest rates. However, few if any economists expect interest rates to return to the extremely low levels seen in the years following the 2008 global financial crisis. 2009.
&Copy 2024 The Canadian Press
