BoE halts interest rate hikes amid slowdown in economy

He Bank of England (BoE) on Thursday paused its long series of interest rate hikes as the British economy slowed, but said it did not take the recent drop in inflation for granted.

A day after an unexpected slowdown in the rapid pace of price growth in the United Kingdom, the Monetary Policy Committee of the Bank of England voted—by a narrow margin of 5-4—in favor of keeping the bank interest rate at 5.25%.

Four members — Jon Cunliffe, Megan Greene, Jonathan Haskel and Catherine Mann — voted in favor of raising rates to 5.5%.

It was the first time since December 2021 that the BoE did not increase borrowing costs.

“There are growing signs of some impact of tighter monetary policy on the labor market and the boost to the real economy in general.“the committee said in a statement.

The committee cut its economic growth forecast for the July-September period from the 0.4% forecast in August to just 0.1% and pointed to clear signs of weakness in the real estate market.

According to him Bank of Englandgrowth for the rest of the year is likely to be lower than previous forecasts.

The record growth in workers’ wages, which has been a major concern for the central bank, was not supported by other labor market measures, he said, suggesting that central bank leaders BoE They expect it to slow down soon.

“CPI inflation is expected to continue falling significantly in the near term, reflecting lower annual energy inflation, despite renewed upward pressure on oil prices“, He said BoE.

However, the bank noted that service sector inflation is expected to remain high.

The decision of Bank of England stopping rate hikes came a day after the US Federal Reserve also opted to maintain borrowing costs. Last week, the European Central Bank raised rates but suggested it could be the last hike for now.

The Monetary Policy Committee reiterated its message that it was prepared to raise borrowing costs again if necessary.

“Further tightening of monetary policy would be necessary if there were signs of more persistent inflationary pressures“said the statement, which repeated the indication that monetary policy would be “restrictive enough for long enough” so that inflation returned to its target of 2%, compared to the 6.7% recorded in August.

Governor Andrew Bailey and other members of the Monetary Policy Committee have recently suggested that the Bank of England is about to end its series of interest rate hikes, but have also highlighted that the costs of borrowing remains high to ensure that inflationary pressures are removed from the economy.

In a separate statement on Thursday, Bailey welcomed the recent drop in inflation and forecasts for the BoE that it would continue to decline. “But there is no room for complacency“, said. “We have to ensure that inflation returns to normal and we will continue to make the necessary decisions to achieve this”.

The Monetary Policy Committee agreed to accelerate the pace of its program to reduce the huge accumulation of government bonds that the central bank acquired over the last decade and a half as it tried to steer the economy through the global financial crisis and the coronavirus pandemic. coronavirus.

As investors expected, the portfolio will be reduced by 100 billion pounds over the next 12 months – through a combination of sales and bond maturities – to a total of 658 billion pounds, the Bank of England said, more faster than last year’s £80bn reduction.