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this Bank of England Reduced interest rate India’s inflation rate rose for the first time since the outbreak of the COVID-19 pandemic in early 2020 as economic inflationary pressures eased.
The central bank said in a statement on Thursday that its policymaking committee voted 5-4 to cut its key interest rate by a quarter percentage point to 5%, or a 16-year high of 5.25%.
Economists are divided over whether the bank, which is independent of the government, will cut rates given persistent price pressures in the services sector, which accounts for around 80 percent of the British economy.
While those concerns remain, headline inflation in the UK has fallen to the central bank’s 2% target, among four countries that have chosen to keep borrowing rates unchanged.
“Inflationary pressures have eased and we can cut interest rates today,” said Reserve Bank Governor Andrew Bailey, who voted for the rate cut. “But we need to ensure inflation remains low and be careful not to cut rates too quickly or by too much. Ensuring inflation remains low and stable is the best way we can support economic growth and our country’s prosperity.”
Bailey’s comments suggest interest rates will not fall much in the coming months, and certainly not near the pace at which the central bank has been raising rates in recent years.
Central banks around the world have sharply raised borrowing costs from near zero during the coronavirus pandemic, and prices have surged, first due to supply chain problems that built up during the pandemic and then as Russia’s full-scale invasion of Ukraine pushed up energy costs.
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While no one expects rates to fall to their previous lows, the central bank is widely expected to cut rates again in the coming months, especially given its forecasts for inflation to remain below target for the next few years, although it is set to rise slightly in the second half of this year.
“But ultimately it will be the data that will determine how interest rates evolve going forward, and the central bank will want its belief that underlying inflationary pressures are receding to be confirmed,” said Luke Bartholomew, deputy chief economist at abrdn, formerly Aberdeen Asset Management.
The rate cut and potential future ones are good news for millions of mortgage holders, especially those whose borrowing costs track the bank’s headline rate, although it may mean lower interest rates on savings offered by banks.
Higher interest rates – which cool the economy by making borrowing more expensive – help to ease inflation but also weigh on the UK economy, which has barely grown since the pandemic rebound.
Critics of the Bank of England say it has been too cautious about inflation in recent months and has kept interest rates high for too long, unnecessarily hurting the economy. Borrowing costs have been stuck at 5.25% since August last year, despite inflation clearly trending downward and the economy stagnating.
The Federal Reserve faces the same accusation, as it kept interest rates unchanged on Wednesday.
Other central banks, including the Bank of Canada and the European Central Bank, have also chosen to cut rates, but have done so cautiously.
— With files from Global News
© 2024 The Canadian Press
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