Bank of England pauses interest rate hikes due to slowing economy
Bank of England pauses interest rate hikes due to slowing economy
Bank of England Halts Interest Rate Increases Amidst Slowing Economy
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By William Schomberg, Andy Bruce and Suban Abdulla
LONDON, Sept 21 (ANBLE) – The Bank of England (BoE) decided to pause its long run of interest rate increases on Thursday as the British economy showed signs of slowing down. However, the BoE also stressed that it was not taking the recent fall in inflation for granted.
A day after a surprising slowdown in Britain’s rapid pace of price growth, the BoE’s Monetary Policy Committee (MPC) voted by a narrow margin of 5-4 to keep the Bank Rate at 5.25%. This marked the first time since December 2021 that the BoE did not increase borrowing costs.
The MPC acknowledged the impact of tighter monetary policy on the labor market and the overall momentum in the real economy, stating, “There are increasing signs of some impact of tighter monetary policy on the labor market and on momentum in the real economy more generally.”
The central bank also cut its forecast for economic growth in the July-September period from 0.4% (as projected in August) to just 0.1%, highlighting clear signs of weakness in the housing market. Furthermore, the BoE stated that growth for the rest of the year was expected to be weaker than previously forecasted.
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While workers’ pay growth reached record levels, the BoE noted that other measures of the labor market did not support this trend, suggesting an anticipation of a slowdown in pay growth in the future.
The BoE projected a significant further fall in Consumer Price Index (CPI) inflation due to lower annual energy inflation, despite renewed upward pressure from oil prices. However, it also highlighted that services inflation was expected to remain elevated.
The BoE’s decision to pause rate hikes aligned with the U.S. Federal Reserve’s recent decision to keep borrowing costs on hold. Additionally, the European Central Bank, which raised rates last week, hinted that it might be the last increase for the near future.
The MPC emphasized its readiness to raise borrowing costs once again if there were evidence of more persistent inflationary pressures. The central bank stated, “Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures,” reiterating its commitment to ensuring inflation returns to its 2% target from the current 6.7% observed in August.
Governor Andrew Bailey and other MPC members had previously mentioned the likelihood of pausing interest rate increases. However, they have also emphasized that borrowing costs would remain high to squeeze out inflation pressures from the economy.
In a separate statement, Bailey welcomed the recent fall in inflation and the BoE’s forecast for continued easing. However, he cautioned against complacency, saying, “But there’s no room for complacency. We need to be sure inflation returns to normal, and we will continue to take the decisions necessary to do just that.”
To bolster its efforts, the MPC also announced an acceleration in the pace of its program to shrink the massive stockpile of government bonds acquired over the past decade and a half. This move aims to steer the economy through the global financial crisis and the coronavirus pandemic. The reduction of the stockpile will amount to 100 billion pounds over the next 12 months, achieved through a combination of sales and allowing bonds to mature. This is faster than the previous year’s reduction of 80 billion pounds.
Overall, the BoE’s decision not to increase interest rates reflects the concerns over the slowing British economy. While inflation has fallen, the central bank remains vigilant and stands ready to take necessary actions to ensure inflation returns to its target level. As uncertainties persist, the UK awaits further developments in its monetary policy to navigate the path to stability.
Keywords: BRITAIN, Bank of England, Interest Rates, Inflation, Monetary Policy, MPC, Economic Growth
