The governor of the Bank of England cautioned that “we’re not out of the woods yet” in terms of growing inflation, therefore interest rates in the UK have been kept at 4%. Given that prices are increasing at a rate that is over twice the Bank’s goal rate, analysts had not anticipated a reduction in interest rates, which affect borrowing costs and savings returns.
The Bank stated that while it is cautious about when it would lower borrowing costs once again, it expects inflation to revert to its primary target of 2%. Just weeks after financial market turbulence, the Bank also indicated it would cut the amount of government debt it owns at a slower pace in conjunction with the interest rate decision. Since August of last year, the Bank has lowered interest rates five times as inflation has slowed.
But since April, inflation has been on the rise once more, partly due to growing food prices. The Bank stated that two of the nine members of its rate-setting Monetary Policy Committee (MPC) had voted to lower rates to 3.75%, but it maintained rates on hold this time. The Bank stated that any more rate cuts will depend on whether it perceives indications that pricing pressures are abating. The MPC will meet twice more this year to consider rates. “Any future cuts will need to be made gradually and carefully because we’re not out of the woods yet,” stated Andrew Bailey, the governor of the Bank.
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