Bank of England Holds Interest Rates Steady as Inflation Remains Above Target

Bank of England's Decision on Interest Rates

The Bank of England is widely expected to maintain interest rates at 5% during its upcoming meeting, as inflation remains above the target threshold of 2%. According to the latest data from the Office of National Statistics, inflation has held steady at an annual rate of 2.2% in August. This consistent inflation rate reflects challenges in the economy, including fluctuating airfares and changes in service costs.

Current Economic Climate

The global context has seen central banks, including the U.S. Federal Reserve, adjust borrowing costs significantly since the pandemic. The Fed is anticipated to cut rates for the first time in four years, paralleling the challenges faced by the Bank of England. Notably, inflation in the crucial services sector in the U.K. increased to 5.6% from 5.2%, influencing the committee's deliberations.

Future Outlook

• The possibility of a rate cut in November is likely, especially post the government's budget announcement on Oct 30.
• The new Labour government acknowledges a £22 billion public finance gap, leading to potential tax raises and spending cuts.
• These measures could impact the inflation trajectory and, ultimately, monetary policy decisions moving forward.

'An interest rate cut on Thursday is looking unlikely as the majority of the Monetary Policy Committee will probably assess the impact of next month’s budget before loosening policy,' said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.