Interest rates: Bank of England keeps rate at four per cent
The Bank of England has made its decision on interest rates for this month.
And, as was expected, the rate has been kept at four per cent by the Bank’s Monetary Policy Committee.
Many economists expected borrowing costs to be kept on hold following signs that inflation is continuing to cool, and as the Bank awaits measures announced in November’s autumn Budget.
In its ruling the Bank said that inflation has peaked and is expected to fall to nearly three per cent next year before returning to the Bank of England’s target of two per cent in 2027.
However, some experts, including banks Barclays and Goldman Sachs, thought there would be a cut to 3.75 per cent, because they thought might be swayed by recent economic data which signals a need to reduce borrowing costs further.
Most economists agree that there would be divisions among the nine-person committee when it comes to this week’s vote - and indeed the decision was only carried by five votes to four.
Speaking before the decision James Smith, a UK developed market economist for ING, said: “Inflation has almost certainly peaked. Food inflation – a critical concern at the Bank of England this summer – fell back in September and is now running half a percentage point below official forecasts. This all comes at a time when the Bank is visibly divided on how problematic inflation really is.”
Official figures showed that UK Consumer Prices Index (CPI) inflation stayed at 3.8 per cent in September, the same level as both July and August, with food prices easing during the month. The headline figure came in below the four per cent that many economists had been expecting.
But Mr Smith said that, while the MPC was “deeply divided”, it will likely remain cautious about the risk of inflation being persistent and opt to keep rates on hold this month.
He also said the Bank was crucially waiting on the outcome of the Budget on November 26, adding: “While the contours of the Budget are becoming clearer, the Bank’s rules mean it can’t act on Government policy until it’s official.”
The base rate was reduced by 0.25 percentage points to four per cent in August, which was the fifth reduction since August last year, when the rate started dropping from its recent high of 5.25 per cent. The current rate is the lowest since February 2023, when it was also four per cent.