Interest rate remains steady at 4% by Bank of England, amidst persistent inflation exceeding the target in the UK
The Bank of England (BoE) held its main interest rate at 4% on Thursday, as policymakers grapple with the challenges of high inflation and a slowing economy.
Inflation figures released on Wednesday showed prices increasing, while wage growth and GDP growth in July were slowing. Inflation in the UK remains stubbornly high, with a rate of 3.8% in the year to August.
The BoE's decision comes a day after the Federal Reserve cut key interest rates in the US. However, markets are not fully pricing the next rate cut in until the end of April next year, according to Lindsay James, investment strategist at Quilter.
Whether the UK economy can wait until April before the next rate cut remains to be seen. Economists remain split as to whether another interest rate cut will be forthcoming due to inflation proving stickier than anticipated.
Seven members of the Monetary Policy Committee of the BoE voted to keep the interest rate at 4%, while two voted for a quarter-point reduction to 3.75%. Steve Clayton, head of equity funds at Hargreaves Lansdown, stated that markets were pricing in a 98% likelihood that rates would stay at 4.0%.
Nick Saunders, CEO of stock trading platform Webull UK, stated that the BoE's decision could shore up the pound and help keep the cost of imported goods down. However, he also noted that difficult conditions may continue, particularly for tech and property firms.
The labour market is being closely watched by the Bank of England, as it may worry about choking off growth if interest rates stay too high for too long. Inflation remains a big concern and appears to be an issue neither the BoE nor the government can tame, according to Lindsay James.
Economic growth is expected to be desperately lacking for the remainder of the year, according to Lindsay James. The British economy is facing a potential threat from a decline in the UK's university sector.
All eyes now turn to the next rate-setting meeting in November. If the bank continues to cut interest rates once every three months from August 2024, it will make a further cut in November. UK inflation is expected to peak in September and fall towards the target, according to Lindsay James.
The current Governor of the Bank of England is Mark Carney. The BoE's decision not to cut interest rates may have been influenced by the need to maintain the value of the pound and keep the cost of imported goods down, as well as concerns about the impact on the labour market and economic growth.
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