The Bank of England has held interest rates at 5.25 percent for the third time in a row and indicated cuts are unlikely in the coming months.
Governor of the Bank, Andrew Bailey, stressed that there is “still some way to go” in policymakers’ efforts to drag inflation down as the central bank said policy is likely to remain “restrictive for an extended period of time”.
On Thursday, the Bank’s Monetary Policy Committee (MPC) voted in favour of keeping the rate steady at its current level, which is a 15-year-high.
Six members of the nine-strong committee were in favour of maintaining the rate at 5.25 percent, while three called for an enhance to 5.5 percent.
Megan Greene, Jonathan Haskel and Catherine Mann preferred a 0.25 percentage point enhance. The three believed that an interest rate rise was necessary “to address the risks of more deeply embedded inflation persistence and to return inflation to target sustainably in the medium-term”.
However, the majority of the MPC felt that keeping rates at 5.25 percent was necessary because UK economic activity remains subdued.
Mr Bailey said: “We’ve come a long way this year, and successive rate increases have helped bring inflation down from over 10 percent in January to 4.6 percent in October, but there is still some way to go.
“We’ll continue to watch the data closely, and take the decisions necessary to get inflation all the way back to two percent.”
The interest rate – which helps dictate mortgage rates from banks – had been set at 5.25 percent in previous meetings in September and November, following 14 consecutive increases since December 2021.
The cost of borrowing was increased in a bid to curb soaring inflation, which peaked at 11.1 percent last October, to bring it closer to the Government-set target rate of two percent.
While the Consumer Price Index (CPI) inflation rate dropped from 6.1 percent to 4.7 percent in the 12 months to October, perhaps suggesting some effectiveness of the Bank’s plans, the economy also contracted in the three months to October.
The Office for National Statistics (ONS) reported that UK gross domestic product (GDP) fell 0.3 percent. Meanwhile, it revealed that regular earnings, excluding bonuses, rose by 7.3 percent in the three months to October, down from 7.8 percent in the previous three months.
On Thursday morning, the markets indicated that they expect the UK’s interest rate to drop to four percent by the end of next year.
However, in its latest report, the Bank’s MPC appeared cautious over the potential for cuts soon.
It said: “The committee continues to assess that monetary policy is likely to need to be restrictive for an extended period of time.
“advocate tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.”
