Bank of England says Inflation has ‘Peaked’ & Holds Interest Rates
Interest rates were held at 4% in a tight vote as the Bank of England said it judged inflation in the UK to have peaked. Policymakers voted 5-4 in favour of leaving rates unchanged on Thursday but said borrowing costs were “likely to continue on a gradual downward path”.
Bank governor Andrew Bailey said rather than cutting interest rates now, he would “prefer to wait and see” if price rises continued to ease this year.
The Bank’s decision comes ahead of the government’s Budget on 26 November, where speculation has grown that Chancellor Rachel Reeves will raise taxes.
The chancellor has not ruled out raising income tax, National Insurance or VAT – a move that would breach Labour’s main manifesto pledge.
Reacting to the Bank’s latest decision, Reeves said the latest forecast “shows that inflation is due to fall faster than previously predicted”.
“At the Budget later this month I will take the fair choices that are necessary to build the strong foundations for our economy so we can continue to cut waiting lists, cut the national debt and cut the cost of living.”
But shadow chancellor Mel Stride said, external interest rates were “staying higher for longer because Rachel Reeves does not have a plan or a backbone. The UK has the highest inflation in the G7 thanks to Rachel Reeves’ Jobs Tax and reckless borrowing spree. And yet she is once again preparing to hike taxes, leaving us trapped in a doom-loop.”
Inflation – the rate at which prices rise – currently stands at 3.8%, nearly double the Bank’s target of 2%. A drop in the rate of inflation does not mean that prices are falling, but that prices are rising at a slower rate.
Despite judging inflation to have peaked, Mr Bailey told the BBC that the Bank needed to “see more evidence” inflation was slowing before rates could be reduced.
“We’ve had one inflation number, the most recent one, which has come in a bit under what we thought it would be and that’s good news, but I do want to see a bit more evidence than one number,” he said.
The Bank said evidence suggested in its quarterly update on the UK economy that there was “no sign of increasing consumer confidence”.
“Consumers remain cautious, focused on value, and prefer saving to overspending,” it said. It also said, while supermarkets had reported strong food sales growth, it was driven by price rises, with volumes staying flat.