The Bank of England kept interest rates at a 15-year high on Thursday, as authorities sought to ease inflationary pressures even amid signs of an economic slowdown.
The bank's key rate remained at 5.25 percent, following a faster-than-expected decline in inflation, which fell below 5 percent in October. Still, the inflation rate was more than double the central bank's 2 percent target.
What worries some policymakers and analysts is that the rate is also high compared to its European neighbors, and workers, on average, are experiencing relatively rapid wage growth, driving up prices in the service sector. Signs that domestic price pressures remain quite strong mean traders don't expect the central bank to cut rates until around the middle of next year. Bank officials were divided over whether to keep rates steady, with a minority voting to raise them further.
“We have come a long way this year and successive rate increases have helped reduce inflation,” Andrew Bailey, the bank's governor, said in a statement. “But there is still a way to go”.
Globally, the fight against high inflation has entered a new phase as price growth peaked last year. Now, central bankers are focused on how to bring inflation down to their targets while managing the adverse effects of previous rate hikes. As the global economy weakens, policymakers are alert about when they might need to cut interest rates, but are cautious about saying such cuts will come too soon and risk reigniting inflationary pressures.
On Wednesday, the US Federal Reserve kept rates stable but policymakers indicated three cuts could be made next year. Later on Thursday, the European Central Bank is also expected to keep rates unchanged.
Reflecting the tougher situation in Britain, where growth is weak but inflationary pressures remain persistent, the Bank of England gave no indication that rate cuts could be imminent. The pound rose almost 1 percent against the US dollar after the rate decision, as traders took stock of the different views between the British and US central banks on future rate cuts.
Growing weakness in the British economy is becoming more evident, as household spending falters while housing investment contracts. The economy contracted 0.3 percent in October, data released Wednesday showed. Monthly readings on economic growth can be volatile, but data from the Office for National Statistics showed the economy had remained roughly the same size for about the last year and a half.
the central bank expects the economy to stabilize between now and 2025. But the bank does not expect inflation to return to the 2 percent target until the end of 2025.
“Monetary policy is likely to need to be restrictive for an extended period,” the central bank said.
Minutes from this week's meeting of Bank of England policymakers highlighted the possibility that rates could rise again, saying “further tightening” would be necessary if there was evidence of “more persistent inflationary pressures.”
Bank officials remain divided over how best to ensure inflation falls quickly and sustainably. Six members of the bank's nine-person rate-setting committee, including Bailey, voted to leave rates on hold.
But the other three voted to raise the rate by a quarter point, arguing it was necessary to counter the risk of “more deeply entrenched” inflation, according to the minutes. Despite weak economic growth, household incomes, once adjusted for inflation, were improving and the labor market was tight. There was evidence of more persistent inflation as wage growth was higher than comfortable to meet the inflation target and price growth in the services sector was “elevated,” the three policy makers said. policies.
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