Mortgage holders have been offered relief after the Bank of England kept interest rates on hold for the first time in almost two years, raising the prospect that a peak in borrowing costs has been reached in the battle against inflation.
In a knife-edge decision as the economy comes under growing pressure, the Bank’s monetary policy committee (MPC) voted by a narrow majority to hold its key interest rate at 5.25% – already the highest level since the 2008 financial crisis.
Official figures on Wednesday showed a surprise fall in inflation in August, and brought to a halt the central bank’s most aggressive round of rate increases in decades – 14 consecutive rises since the end of 2021.
Exposing a split within the Bank’s most senior ranks, the nine-strong MPC was divided 5-4 with a minority pushing for a further quarter-point rise. The Bank’s governor, Andrew Bailey, cast the decisive vote in favour of a pause.
“Inflation has fallen a lot in recent months, and we think it will continue to do so. That’s welcome news. But there is no room for complacency,” he said, indicating that the Bank stood ready to take further action if required. “We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that.”
Financial markets bet the central bank had reached the end of its round of rate increases, while Britain’s biggest high street lenders – including Nationwide – cut the rate on their mortgage products amid the anticipation of no further changes.
The chancellor, Jeremy Hunt, said Britain was “starting to see the tide turn against high inflation”, while insisting the government was on track to meet its promise to halve inflation this year. “Now is the time to see the job through,” he said.
However, borrowing costs are expected to remain at high levels for a lengthy period as the central bank attempt to return inflation back towards the 2% target set by the government without tipping the economy into recession.
Threadneedle Street warned risks to the economy were gathering as the impact from previous rate increases weighs heavily on households and businesses, saying it foresaw only a slight rise in output in the third quarter of the year and “weaker than expected” growth in the second half.
Financial markets had been finely balanced in the run-up to the decision, with the City predicting a near-even chance of a quarter-point rise, reflecting the difficulty for the Bank in steering through a period of high inflation and deteriorating economic growth.
The Bank, the chancellor and City investors were wrongfooted by the unexpected fall in UK inflation in August, to 6.7%, while separate figures showed a cooling jobs market and weaker levels of economic activity.
Central banks around the world are approaching the end of the rate-hiking cycle, which started after the inflation shock triggered by the Covid pandemic and Russia’s war in Ukraine. The US Federal Reserve left…
2023-09-21 12:45:58
Source from www.theguardian.com