Interest rate held at 4.5% amid global tensions

The high inflation rate was one of the key considerations, although this week’s 3.4% figure was in line with the Bank’s projections.

The Bank’s monetary policy committee (MPC) voted by a majority of 6–3 to maintain interest rate at 4.25%. A minority of members wanted to cut the rate by a quarter of a point to 4%, similar to the last meeting. It is now three months since the last reduction.

With inflation running high, the Bank cannot meet its primary 2% inflation objective, and warned that ‘inflation was expected to remain broadly at current rates throughout the remainder of the year before falling back towards target next year’. 

Weak economic growth was a contributing factor and inflationary concerns, with the Bank noting: ‘Underlying UK GDP growth appears to have remained weak, and the labour market has continued to loosen’, adding it will remain ‘vigilant about the extent to which easing pay pressures will feed through to consumer price inflation’.

The latest Bank meeting was set against rapidly evolving global threats to stability, and the Bank stressed ‘global uncertainty remains elevated. Energy prices have risen owing to an escalation of the conflict in the Middle East. The Committee will remain sensitive to heightened unpredictability in the economic and geopolitical environment, and will continue to update its assessment of risks to the economy.’

For the rest of the year, the Bank minutes hinted at a cautious approach, stating: ‘Monetary policy would need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term had dissipated further.’

Source - Business & Accountancy Daily

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