1 week Ago
The Bank of England left its interest rate on hold at 4.5% today. The Bank’s Monetary Policy Committee (MPC) voted by a majority of 8 to 1 to keep the cost of borrowing unchanged despite the UK’s faltering economic growth.
With inflation still above the Bank’s 2% target at 3% in January and today’s jobs data showing wages rising at 5.9% the MPC decided it was too soon to ease monetary conditions. The decision was widely expected in the City but will disappoint mortgage holders and businesses saddled with high levels of debt.
Interest peaked at 5.25% between August 2023 and August last year in response the inflation spike caused by the Ukrainian war and the lifting of Covid restrictions. The Bank has been slowly reducing since then with quarter point cuts in August, November and February.
Economists still expect another quarter point cut in rates at the MPC’s next meeting in May with several more by the end of the year bringing the rate below 4%. The MPC vote comes less than a week before the Chancellor ’s Spring Statement when she is expected to order more public spending cuts to stay within her fiscal rules. Michael Field, chief equity strategist at Morningstar, said: “In the wake of Trump tariff threats, and inflation spiking once again in the UK, to 3%, the slow and steady approach to rate cutting makes sense.
“Rates are down 75 basis points from their peak, and the Bank of England has been very clear in communicating that it wishes to bring down rates further. Something that is currently being appreciated by equity investors, with the FTSE close to all-time highs. “ Paresh Raja, CEO of Market Financial Solutions, said: “The past six months have shown that predicting base rate movements is never straightforward.
“The hope had long been that once inflation was brought under control, the Bank of England would rapidly reduce rates. “But this was over simplistic; it overlooked the myriad other factors at play - economic and politically, domestically and internationally, the landscape is constantly evolving, and while further cuts to the base rate are still expected this year, it is likely that the central bank will remain cautious. Today’s decision reflects that.
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