Bank of England Holds Interest Rates Steady, Expects Prolonged High Rates

         

The Bank of England maintains its main interest rate at 5.25%, signaling a continued need for restrictive monetary policy amid high inflation, despite a slowing economy.

Interest Rates Unchanged

The Bank of England’s Monetary Policy Committee has voted 6-3 to keep the main interest rate at 5.25%, with dissenting members advocating for a 25 basis point hike. This decision marks the third consecutive meeting with no change in rates.

Inflation and Economic Activity

Despite a decline in headline inflation to 4.6%, the central bank remains concerned about persistently high inflation and its impact on the economy. Real GDP was flat in the third quarter, and the economy unexpectedly shrank by 0.3% month-on-month in October.

Monetary Policy Outlook

The Bank of England anticipates a need for restrictive monetary policy for an extended period to bring inflation down to the 2% target. It projects average consumer price index of around 4.75% in the fourth quarter of 2023, declining to 3.75% in the second quarter of 2024.

Economic Concerns and Market Reactions

Economists and market analysts express concerns about the prolonged high rates, calling for a more accommodating monetary policy given the fragile economic conditions. The Bank’s decision to maintain a hawkish stance diverges from the U.S. Federal Reserve’s dovish pivot.

Government Response

Despite fears of excessive monetary tightening, a Treasury spokesperson emphasizes the need to continue driving inflation down to reach the 2% target, highlighting the rise in real wages as a positive indicator.

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