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Bank of England | AccountingWEB | Interest rates held at 16-year high

Interest rates held at 16-year high


Interest rates have been held at a 16-year high by the Bank of England, with the Monetary Policy Committee voting 8 to 1 in favour of the decision.

21st Mar 2024
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Interest rates have been held at a 16-year high by the Bank of England.

At its meeting ending on 20 March 2024, the Monetary Policy Committee (MPC) voted by a majority of 8 to 1 to maintain the bank rate at 5.25%. One member preferred to reduce it by 0.25 percentage points, to 5%.

The BoE noted that headline CPI inflation had “continued to fall back relatively sharply, in part owing to base effects and external effects from energy and goods prices”.

“The restrictive stance of monetary policy was weighing on activity in the real economy, was leading to a looser labour market and was bearing down on inflationary pressures,” it added. “Nonetheless, key indicators of inflation persistence remained elevated.”

For all eight members who voted to hold the rate, “further accumulation of evidence on inflation persistence would be required to warrant a shift in the monetary policy stance, with members differing on the extent of evidence that was likely to be needed”.

“They would continue to consider the degree of restrictiveness of policy at each meeting.”

Waiting on reassurance

For the member who preferred a 0.25 percentage point reduction, they believe that waiting for more reassurance before reducing the rate “would weigh further on living standards and supply capacity”.

In an indication that there is unlikely to be a big cut anytime soon, the BoE said: “Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit.”

As for the fiscal measures announced in the Spring Budget earlier this month, the Bank added that these are “likely to increase the level of GDP by around 0.25% over coming years”.

“As the measures will probably also boost potential supply to some extent, the implications for the output gap, and hence inflationary pressures in the economy, are likely to be smaller.”

"Where the US leads, the UK will follow"

Nicholas Hyett, investment manager at Wealth Club, noted that while rates remain unchanged, the committee seems “more cautious about the future path of inflation than we had expected”.

“References to geopolitical risks in the Middle East and Red Sea suggest the committee sees a real chance supply chains are disrupted again, pushing up prices. The committee has also made nods towards the level of services inflation, which at 6.1% remains high. The market was already anticipating that rate cuts wouldn’t start until the second half of the year, and there’s little in these numbers to change that perception.

“So what will ultimately trigger a change of course? We suspect that central banks around the world are waiting on the US Federal Reserve to set the pace. Once the Fed starts to cut, currency movements will likely force others to follow suit.

“As in so many other areas of public life, where the US leads, the UK will follow.”

Richard Murphy, chartered accountant and fair tax campaigner, posted on X: "The Bank of England has voted to keep interest rates at 5.25% when inflation in the last ten months has been running at under 2%. Economic insanity, mixed with sociopathic callousness, is rarely more obvious than this."

Inflation falling

The update comes on the back of the announcement yesterday that inflation fell to its lowest level in two and a half years.

February’s drop to 3.4% from 4% in January was driven by food, and restaurants and cafes, while the largest upward contributions came from housing and household services, and motor fuels.

Energy, food, alcohol and tobacco prices eased.


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By petestar1969
26th Mar 2024 11:53

Seems like they are likely to star falling just in time for my remortgage due in a year's time..... Sweet!!

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