The Bank of England has chosen to maintain the main interest rate at 5.25%, a 15-year high, as the country’s inflation is expected to decrease further in the upcoming months. The decision was announced by the bank’s nine-member Monetary Policy Committee in a statement yesterday. The committee indicated that inflation, measured by the consumer price index, is predicted to fall towards the target rate of 2% in the next year. In September, inflation stood at 6.7%.
Economists are anticipating a significant decline in inflation over the coming months, mainly driven by a decrease in domestic energy bills. This is considered a positive development for consumers, who have been grappling with rising costs in recent times.
The Bank of England’s decision to keep interest rates unchanged follows its decision in September to end a period of almost two years during which rates were continuously raised. The US Federal Reserve and the European Central Bank have also chosen to hold their interest rates steady over the past week.
Like other central banks, the Bank of England had been compelled to raise interest rates aggressively from near-zero levels. This move aimed to counter the price rises initially triggered by supply chain disruptions caused by the Covid-19 pandemic, and later by Russia’s invasion of Ukraine, which led to increased food and energy costs. Higher interest rates have the effect of cooling the economy by making borrowing more expensive, thereby reducing spending. This has had a positive impact on curbing inflation rates worldwide.
Although most economies have managed to stay clear of entering into a recession, there is ongoing concern that the British economy could experience a contraction in output in the coming months. This is not an ideal scenario for the ruling Conservative Party as it approaches a general election.
It is crucial to note that the Bank of England’s decision to maintain the interest rate at the current level highlights its commitment to keeping inflation under control. By pursuing this course of action, the bank aims to provide stability and predictability in the UK economy. It is anticipated that the decision will be welcomed by businesses and consumers alike, as they rely on consistent economic conditions to plan for the future.
More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )