UK not out of woods on inflation, says Bank of England as interest rates held
As the Bank of England governor said, we're not out of the woods yet
in terms of rising inflation, UK interest rates have been held steady at 4%. Analysts had not expected interest rates, which influence borrowing rates and returns on savings, to be reduced considering that borrowing rates are increasing at nearly double the Bank's target rate. The Bank expects inflation to return to its previous high of 2%, but is uncertain when it will reduce borrowing costs. The Bank also announced that it would reduce the amount of government debt it holds at a slower rate as a result of turmoil in the financial markets, along with the interest rate decision.
Since the rate of price rises eased, the bank has lowered interest rates five times since August last year. However, inflation has been heading higher since April, fuelled in part by higher food prices. Although the Bank held rates steady this time, it revealed that two of the nine members of its rate-setting Monetary Policy Committee (MPC) had voted to cut rates to 3. 75%. The MPC will meet two more times this year to discuss rates, but the bank said it wanted to see signs that price pressures were decreasing before lowering rates again. We're not out of the woods yet,
Bank Governor Andrew Bailey said.
As Chancellor Rachel Reeves prepares to announce the Budget in November, the bank also announced that it will reduce the amount of headroom she has against her self-imposed tax and spending limits, which it also estimated during the financial crisis and pandemic. During times of uncertainty, the Bank of England purchased £875 billion worth of government bonds to help the economy. It has been lowering the amount of debt it owns by around £100 billion a year. It did announce on Thursday that from October onwards, it would be reduced to £70 billion. The change, according to Mr Bailey, would allow the bank to continue with its plans "while minimizing the effect on gilt market conditions.
