Bank of England base rate remains at 5.25%

On Thursday 21st September 2023, the Bank of England have decided against another interest rate hike, halting another consecutive increase in base rate.

In August, the Monetary Policy Committee (MPC) lifted the base rate by 0.25% from 5% to 5.25% in a bid to rein in inflation. However today marks the first time in 21 months that the central bank has decided to vote against raising rates for a 15th time. The committee was truly split, voting in favour of a hold by 5-4. The MPC voted to keep rates the same after an unexpected fall in inflation figures on Wednesday 20th September 2023, easing the pressure enough to keep interest rates at 5.25% this month.

Since the MPC’s previous meeting, global growth has evolved broadly in line with the August Report projections, albeit with some differences across regions. Spot oil prices have risen significantly, while underlying inflationary pressures have remained elevated across advanced economies.

Commenting on the pause in base rate, Chancellor Jeremy Hunt said: “We are starting to see the tide turn against high inflation, but we will continue to do what we can to help households struggling with mortgage payments. Now is the time to see the job through. We’re on track to half inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down.”

Despite the announcement, the Bank of England insist that further rate rises may still be a requirement. In its notes explaining the decision to hold base rate, the Bank of England said that its monetary policy must be restrictive for a “sufficiently long” period. It said: “Monetary policy will need to be sufficiently restrictive for sufficiently long enough to return to the 2% target sustainability in the medium term, in line with the Committee’s remit. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.”

Policymakers said core inflation was much weaker than expected as it fell from 6.4%to 5.2% in August as they explained the decision to hold interest rates steady. The MPC expect to see CPI inflation fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewal of upward pressures from oil prices and further declines in food and core goods price inflation.

The Monetary Policy Committee will be holding their next meeting on Thursday 2nd November 2023.

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