May 24th, 2024

Bank of England keeps interest rate at 5.25% for 6th time, seeks more proof inflation under control

By Pan Pylas, The Associated Press on May 9, 2024.

FILE - The Bank of England in London, is shown on Dec. 15, 2022. The bank is expected to maintain interest rates at a 16-year high of 5.25%, but a cut wouldn't be a huge surprise as inflation falls from multi-decade highs. (AP Photo/Alastair Grant, File)

LONDON (AP) – The Bank of England maintained its key U.K. interest rate at a 16-year high of 5.25% though it gave a broad hint that a reduction could be on the cards imminently as inflation falls towards its target.

In a statement Thursday, the bank’s nine-member Monetary Policy Committee voted 7-2 to keep rates unchanged, with the 2 dissenters backing a quarter-point reduction. Last time, only one member voted for a quarter-point cut.

The increase in the number of those backing a rate reduction is a clear indication that there is a shifting balance on the committee in favor of cuts.

“We’ve had encouraging news on inflation and we think it will fall close to our 2% target in the next couple of months,” said Bank Gov. Andrew Bailey. “We need to see more evidence that inflation will stay low before we can cut interest rates. I’m optimistic that things are moving in the right direction.”

Headline inflation in the U.K. is down at an annual rate of 3.2%, its lowest level in two and a half years, but remains higher than the bank’s 2% target.

Like the U.S. Federal Reserve last week, which also kept rates, on hold, the majority on the panel wanted to see more evidence that inflation is under control.

The Bank of England, like the U.S. Fed and other central banks around the world, raised interest rates aggressively in late 2021 from near zero to counter price rises first stoked by supply chain issues during the coronavirus pandemic and then by Russia’s invasion of Ukraine.

Higher interest rates – which cool the economy by making it more expensive to borrow – have helped ease inflation, but they’ve also weighed on the British economy, which is barely growing.

The U.K.’s governing Conservative Party, which appears headed for a big electoral defeat later this year to the main opposition Labour Party, is hoping that interest rates start coming down soon, relieving the pressure on financially-stretched households, thereby helping to fuel an economic feelgood factor.

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