LONDON (AP) — The Bank of England maintained its key UK 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 UK 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 US 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 US Fed and other central banks around the world, raised interest rates aggressively in late 2021 from near zero to counter price rises first staked by supply chain issues during the coronavirus pandemic and then by Russia’s invasion of Ukraine.
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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 UK’s governing Conservative Party, which appears headed for a big electoral defeat later this year to the main opposition Labor 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.
