The Bank of England kept interest rates unchanged on Thursday, following the Federal Reserve and the European Central Bank.
Like the Fed, the BOE is battling inflation that hasn’t returned to its target despite a series of rate hikes. Between December 2021 and August this year, the U.K. central bank lifted borrowing costs at 14 straight meetings. Now, officials say they are taking a more cautious approach as they evaluate the effects of previous hikes.
The Monetary Policy Committee voted 6-3 for the decision, with the minority preferring a quarter-point increase. New forecasts show that inflation won’t return to the 2% target until 2025.
In September, headline inflation in the U.K. was 6.7%. Price increases aren’t slowing as quickly as they are in the U.S. or Europe, where inflation is at 3.7% and 2.9%, respectively.
Core inflation, which strips out volatile food and energy prices, also remained uncomfortably high at 6.1% in September.
The U.K.’s interest rate stands at a 15-year high of 5.25%. And it might stay there for some time. But don’t expect Governor Andrew Bailey, set to speak at a press conference after the decision, to put a fine point on whether rate hikes are over.
While inflation is still high, economic growth in the U.K. is much weaker than it is in the U.S., raising the chances of recession. In updated forecasts Thursday, the BOE said gross domestic product could be flat in the third quarter and may even contract in the fourth, a weaker projection than previously.
Bailey, like the Fed’s Jerome Powell, is likely to focus on the need to keep rates high while the consequences of previous rates play out. And Bailey is also likely to preserve the option to raise rates as needed.
Write to Brian Swint at [email protected]
Read the full article here
