Interest rates maintained by Bank of England despite persistent high inflation
The Bank of England (BoE) has kept its key interest rate at 4% on Thursday, as the central bank navigates through a challenging economic landscape. This decision was made amid rising inflation and a sluggish economy, following a regular policy meeting.
The BoE's decision was in line with market expectations and marked the fourth consecutive meeting where the rate has remained unchanged. The last change in the key interest rate was in August 2022, when the BoE reduced borrowing costs to the lowest level in 2.5 years.
However, the decision was not unanimous. One member of the Fed, named Miran, dissented during the rate decision.
The current Governor of the Bank of England, Andrew Bailey, stated that while inflation is expected to return to the 2% target, future cuts will need to be made gradually and carefully. This cautious approach is in line with the BoE's commitment to maintaining price stability and supporting the UK's economic recovery.
The UK economy is facing pressure due to various factors, including the hiking of taxes and slashing of public spending by Finance Minister Rachel Reeves following Labour's general election win in July last year. The Labour government is facing pressure ahead of the annual budget announcement in late November, as they grapple with the challenge of driving economic growth.
The BoE's decision comes amidst a global trend of central banks adjusting their monetary policies. The US Federal Reserve cut its benchmark borrowing costs for the first time in 2025 a day before the BoE's decision. The Fed delivered a normal-sized rate cut, indicating a steady pace of further reductions. Similarly, the Bank of Norway reduced interest rates to avoid putting pressure on the country's economy, while the Bank of Canada trimmed borrowing costs this week, citing concerns over the impact of US President Donald Trump's tariffs.
Despite several reductions over the past year, Britain's economy has struggled to grow. Unemployment in Britain is at a four-year high, with the latest official data showing UK annual inflation at 3.8% in August. These figures highlight the ongoing economic challenges faced by the UK, and the BoE's decision to maintain the key interest rate at 4% reflects a careful balance between managing inflation and stimulating growth.
Markets do not fully expect the next rate cut until the end of April, according to investment strategist Linsday James. As the BoE continues to monitor economic developments, the next few months will be crucial in determining the future direction of monetary policy.
In conclusion, the Bank of England's decision to maintain the key interest rate at 4% reflects a cautious approach in the face of economic challenges. As the UK government and central bank navigate through these difficulties, the focus remains on maintaining price stability and supporting economic recovery.
