The Bank of England has held interest rates at 4.5 per cent. The Monetary Policy Committee (MPC) voted eight to one to hold the base rate at its current level after reducing it by 0.25 percentage points six weeks ago. Markets and pundits had expected the decision, despite figures last week revealing the economy had contracted slightly in January.
The Bank shares the government’s alarm at the lack of growth, warning in its report last month that ‘GDP growth has been weaker than expected, and indicators of business and consumer confidence have declined’. However, its fears that inflation may creep back up again – which the Bank predicts will peak at 3.7 per cent this year – won the day.
Additionally, the Bank’s decision was beyond doubt when the Office for National Statistics published figures showing average pay rising by 5.8 per cent – substantially above the 2-3 per cent wage growth the MPC had previously indicated it would be comfortable with.
The decision followed that of the US Federal Reserve, who last night also held rates in a range from 4.25 to 4.5 per cent. The Fed also cut their growth forecast for this year and said that tariff-induced inflation reduced the likelihood of further rate cuts. The new forecasts have America’s economy growing 1.7 per cent, instead of the 2.1 per cent they’d forecast previously.
The Bank of England took aim at Trumponomics too, saying that since its last interest rates meeting ‘global trade policy uncertainty has intensified’ and that ‘other geopolitical uncertainties have also increased and indicators of financial market volatility have risen globally’.
As for where we go from here, markets are currently pricing only two more cuts this year and predict rates will then settle at 4 per cent. The Bank’s Governor, Andrew Bailey, said that while he thinks rates are on a downward path, ‘there’s a lot of economic uncertainty at the moment’ and reiterated the Bank’s commitment to keeping inflation ‘low and stable’. The good news mortgage-holders hope for won’t be coming anytime soon.
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