The Bank of England kept interest rates at the highest level in 15 years on Thursday, although policymakers were again divided over the best action to curb high inflation.
Six members of the central bank’s nine-member rate-setting committee voted to keep rates at 5.25 percent amid continued decline in inflation and signs of a weakening economy. But he said restrictive monetary policy would require a stronger stance than before for an “extended” period, according to minutes of this week’s policy meeting.
“Higher interest rates are working and inflation is falling,” Bank Governor Andrew Bailey said in a written statement. He voted to maintain the rates. But the bank needs to see inflation falling “fully” to its 2 percent target, he said, and so policymakers will “watch closely to see if further rate hikes are needed.”
While the UK prepares for this long period of higher rates, the economic outlook has become bleak. In projections accompanying Thursday’s decision, the bank said the economy would remain stable for most of the next two years. The forecasts also highlight the challenge policymakers face in eliminating high inflation, which stalled at 6.7 percent in September. Inflation rates in 2024 and 2025 are expected to be slightly higher than predicted a few months ago. For example, inflation will slow to 3.4 percent at the end of next year, compared with the previous forecast of 2.8 percent.
Minutes of the meeting said three other committee members voted to raise rates another quarter-point to avoid risks of “the persistence of more deeply embedded inflation.” He said that even though the economy was weakening, household incomes were rising due to low inflation and indicators of economic output remained positive.
It was the second consecutive meeting at which rates were held steady, ending nearly two years of rate increases to combat extremely high inflation. At the last meeting in late September, a slim majority of five voted to keep rates on hold.
Thursday’s decision mirrors decisions by the Federal Reserve on Wednesday and by the European Central Bank last week to leave interest rates unchanged as there was evidence that tight monetary policy was cooling their economies and reducing inflation pressures. Was staying. All these central banks have kept open the possibility of further rate hikes, but have turned their attention to how long rates will remain at these levels to ensure inflation returns to their 2 percent target.