Bank of England's interest rate at 15-year high of 5.25%
The Bank of England (BoE) has decided to keep the interest rate steady at a 15-year high of 5.25%, as it continues to combat the highest inflation among major developed economies. In line with economists' predictions, the Monetary Policy Committee (MPC) voted 6-3 to maintain the Bank Rate. Despite indications that the UK economy is approaching a recession and may stagnate in the coming years, the BoE stressed that it does not anticipate lowering rates in the near future.
Governor's statement on inflation and rate hikes
Governor Andrew Bailey clarified that the decline in inflation from its highest level since the 1980s and a weaker economic outlook should not be interpreted as a signal that rate reductions might be imminent. He emphasized, "We need to see inflation continuing to fall all the way to our 2% target." Bailey also noted, "We've held rates unchanged this month, but we'll be watching closely to see if further rate increases are needed."
BoE's economic forecast and inflation target
The BoE projects that the UK economy experienced no growth during the July-September period and will expand by 0.1% in the fourth quarter. Additionally, it forecasts zero growth for 2024 and a 0.25% increase in 2025. However, inflation is expected to reach the 2% target by the end of 2025, which is six months later than previously estimated. The central bank also anticipates that inflation will decrease to 4.8% in the October quarter, two percentage points lower than in September.
Unemployment rate and wage growth concerns
The BoE is keeping a close eye on robust wage growth. The central bank acknowledged "increasing uncertainties" regarding official labor market data due to low survey response rates. It now believes that job growth has likely been weaker than initially estimated and that the strong wage growth will eventually subside. Based on the market's trajectory for interest rates, the BoE predicts the unemployment rate will climb to 5% in two years, up from the current 4.2%.
