Interest Rate Remains Unchanged in Latest Bank of England Vote

A general view of the Bank of England in London on Sept. 21, 2023. Aaron Chown/PA Wire

The interest rate has been left unchanged by the Bank of England (BoE) for the third time in a row, maintaining the 15-year high of 5.25 percent.

The central bank has increased the rate in 14 consecutive meetings until it reached a peak in the summer. On Thursday, the BoE’s Monetary Policy Committee (MPC) voted by a majority of 6–3 to maintain the rate at 5.25 percent.

Three members voted to raise the interest rate to 5.5 percent. Their vote may have been triggered by concerns over the latest wage inflation figures, showing an annual rate growth of 7.3 percent. The bank wouldn’t want wages rise at such a pace because it feeds into broader inflation.

The current inflation of 4.6 percent is far from the overall 2 percent target set by the government. However, Downing Street has so far succeeded in delivering its pledge to halve the January rate of 10.1 percent by the end of the year.

“We’ve been working to reduce inflation and support you with the cost of living. And we’re delivering,” Prime Minister Rishi Sunak said in an X post on Wednesday.

The inflation rate, however, still remains historically high, as does the interest rate.

“The persistence of the inflation remains an issue,” BoE Governor Andrew Bailey told Bloomberg.

Too Early to Speculate

The bank’s decision comes after the Office of National Statistics (ONS) shared the latest GDP figures on Wednesday. The ONS reported a monthly GDP drop of 0.3 percent in October, following 0.2 percent growth in September.

Wide-ranging contractions across the economy challenge Mr. Sunak’s government, which earlier this year included economic growth as one of its five key pledges.

While the markets have recently indicated that they expect the UK’s interest rate to drop to 4 percent by the end of next year, the BoE remains cautious of potential cuts.

“The committee continues to judge that monetary policy is likely to need to be restrictive for an extended period of time. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures,” the MPC said in its report.

Mr. Bailey said it was “really too early to start speculating about cutting interest rates.”

“There is still more to do. We need to get inflation all the way back to 2 percent. We are likely to keep interest rates higher for a while longer to do that. We’ve come a long way in the last 12 months and will continue to do what it takes to get inflation down to the 2 percent target,” he said on X.

Looking Ahead

Forecasts by the Office for Budget Responsibility (OBR), which reviews public finances, have indicated a higher inflation rate in the next five years.

A further year will required to reach the BoE’s 2 percent target and stay “relatively close to that level in the years after that,” said OBR Chair Richard Hughes in a recent presentation.

He estimated that high interest rates will continue to weigh on households and businesses, as the OBR expects the economy to grow more slowly—at around 1.6 percent a year—than previously anticipated.

Last week, the BoE’s Financial Policy Committee (FPC) warned that high interest rates and increased living costs are yet to be reflected in higher mortgage payments. This means stretched household finances for many borrowers.

According to the FPC, almost 5 million UK homeowners will see their repayments increase over the next three years.

“Households across Britain have been left worse off after 13 years of economic failure under the Conservatives,” shadow chancellor Rachel Reeves said on Thursday.

In a bid to deliver a strong economic strategy, Chancellor Jeremy Hunt in his Autumn Statement said that the government will take “110 different measures to help grow the British economy.”

He said that the economy was “back on track,” as he announced plans to cut national insurance contributions and give businesses a temporary tax break.