Bank of England holds rates steady for seventh month in a row

Once again, the Bank of England has chosen to maintain interest rates at 5.25%, marking the seventh straight month without a change. This decision comes despite the latest data showing a drop in inflation to the Bank’s target level of 2%, a figure unseen in nearly three years.

The Bank of England’s steadfast approach remains a cautious optimism because while inflation falls, economic indicators suggest that not all is well under the surface. With prices climbing slower, the implications are huge for everyone from everyday workers to big-time borrowers and homeowners. It appears that the economy is still too wobbly for any drastic moves.

The rate reduction has mixed effects . For consumers, the slowdown in price increases means slight relief, but the consistent rate holds can strain those with existing loans or mortgages, as their repayment rates do not actually reduce. Bank of England states that it wants to anchor inflation expectations firmly before adjusting the interest rates.

The Confederation of British Industry (CBI) hinted that if trends continue favorably, this could set the stage for a rate cut in August. However, the Bank of England, led by Governor Andrew Bailey, remains wary. Bailey thinks a sustained low inflation rate is necessary to consider reducing interest rates, indicating that a single data point won’t sway their long-term monetary policy.

It’s good news that inflation has returned to our 2 percent target. We need to be sure that inflation will stay low, and that’s why we’ve decided to hold rates at 5.25 percent for now.

Andrew Bailey

Despite reaching the inflation target, the Bank of England’s Monetary Policy Committee (MPC) remains divided. Some members argue for more evidence of reduced inflation persistence, especially in service sectors like hospitality and culture, where prices remain stubbornly high.

Additionally, wage growth has been outpacing predictions, adding another layer of complexity to the economic landscape. This wage inflation suggests that businesses are paying more to attract or retain workers, possibly reflecting tighter labor market conditions.

Across the pond, the Federal Reserve also left its rates unchanged in June, indicating only a single expected rate cut before the end of 2024. The European Central Bank has already started reducing rates, a move some argue the Bank of England should mirror to strengthen the UK’s economic recovery.

Jai Hamid