Bank of England Breaks Interest Rate Hike Streak Amidst British Economic Slowdown

The Bank of England broke its streak of interest rate hikes today due to a slowdown in the British economy. Learn more about the decision and its implications on the country's economic outlook.

The Bank of England broke its streak of interest rate hikes today, citing a slowdown in the British economy. Despite this, the bank emphasized that it was not taking the recent decrease in inflation lightly. Following a surprising deceleration in the country's rapid price growth, the Bank of England's Monetary Policy Committee narrowly voted 5-4 to maintain the Bank Rate at 5.25%. However, four members of the committee, namely Jon Cunliffe, Megan Greene, Jonathan Haskel, and Catherine Mann, advocated for an increase to 5.5%. This decision marked the first time since December 2021 that the Bank of England did not raise borrowing costs.

Moreover, the bank also revised its forecast for economic growth in the months from July to September, downgrading it from 0.4% (as projected in August) to a mere 0.1%. Clear indicators of fragility within the housing market were also highlighted. The Bank of England anticipates weaker growth for the remainder of the year, which contrasts with earlier predictions. One of the bank's concerns, rapid growth in workers' pay, was not substantiated by other indicators of the labor market. Consequently, the policymakers at the Bank of England anticipated a slowdown of this growth in the near future.

In terms of inflation, the bank stated that it expects a significant decrease in Consumer Price Index (CPI) inflation in the short term, primarily due to reduced annual energy inflation. However, it also noted that services inflation is likely to remain elevated.

Notably, the Bank of England's decision to pause its rate hikes coincided with the US Federal Reserve's choice to keep borrowing costs stable. Furthermore, although the European Central Bank raised rates last week, it hinted that this might be the final hike for now. The Monetary Policy Committee restated its position that it would not hesitate to raise borrowing costs again if the need arises. The statement also reiterated that monetary policy would remain "sufficiently restrictive for sufficiently long" in order to bring inflation back to its 2% target, given that it stood at 6.7% in August.

Governor Andrew Bailey, alongside other members of the Monetary Policy Committee, has recently suggested that the Bank of England was nearing a pause in its series of interest rate increases. However, they have simultaneously underscored that borrowing costs are likely to remain high to eradicate inflationary pressures from the economy. In a separate statement, Bailey welcomed the recent decline in inflation and the Bank of England's forecasts that inflation would continue to ease.

Furthermore, the Monetary Policy Committee agreed to accelerate the pace of its bond-buying reduction program. Over the past fifteen years, the central bank has accumulated a vast amount of government bonds in an effort to steer the economy through both the global financial crisis and the COVID-19 pandemic. As widely anticipated by investors, the Bank of England will reduce this stockpile by £100 billion over the next twelve months through a combination of sales and allowing bonds to mature. This accelerated reduction exceeds the £80 billion decrease observed in the previous year.

During a press briefing following the decision to maintain interest rates at 5.25%, Governor Andrew Bailey emphasized that reducing interest rates would be premature. He stated that the rate-setters have not discussed such a course of action and refrained from making predictions about the bank's next move.

Bank of England Breaks Interest Rate Hike Streak Amidst British Economic Slowdown

Bank of England Breaks Interest Rate Hike Streak Amidst British Economic Slowdown

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