Matthew Horwood/Getty Images
The Bank of England did not rule out further rate hikes.
Bank of England suspends historic interest price increase campaign Thursday for the first time in nearly two years, after inflation unexpectedly fell in August.
The decision will keep UK commercial banks’ main borrowing costs at 5.25%, which remains the highest since February 2008, following the longest series of hikes in the benchmark interest rate in at least a century. It is standard. The Fed also kept interest rates unchanged. Wednesdayas did the Swiss central bank early Thursday.
This news will bring some relief to struggling British households. mortgage repaymentwhich could lead to lower mortgage rates in the coming weeks.
The decision to suspend was the result of a tough vote. Five members of the Bank of England’s Monetary Policy Committee supported keeping the current interest rate, but four members wanted it to rise by a quarter of a point to 5.5%.
However, the central bank did not rule out further rate hikes, suggesting that borrowing costs need to remain high for an extended period of time to ensure a sustained decline in inflation.
Governor Andrew Bailey said: “Inflation is still not where it should be and there is no room for complacency.” video posted to the bank Website. “We will be watching closely to see if further increases are needed. And we will need to keep rates high enough for a long enough period to ensure we get the job done.”
Despite this hawkish tone, many analysts do not expect further rate hikes.
“The banks’ job is done,” said Paul Dales, chief UK economist at Capital Economics. However, he added that interest rates are likely to remain at current levels longer than investors expect.
Alice Hayne, personal finance analyst at online investment platform BestInvest, said the Bank of England’s decision would be a “huge relief” for households struggling with rising prices and high borrowing costs.
“The really good news is that interest rates may have finally peaked in the current tightening cycle, giving consumers a glimmer of hope that soaring borrowing costs may finally be coming to an end,” he said. ” he added.
Hina Budhia, a partner at mortgage broker Knight Frank Finance, said the decision, along with improving inflation statistics, “paves the way for lenders to further reduce mortgage rates in the coming weeks.”
British mortgage rates have fallen in the past few weeks but are still well above where they were a year ago. The average cost of a two-year fixed-rate mortgage was 6.58% as of Thursday, according to financial product comparison website MoneyFact. In comparison, interest rates were 4.24% in September last year and just 2.38% in September 2021.
The odds of the Bank of England suspending policy soared on Wednesday after data showed British consumer prices rose 6.7% in August from a year earlier.
A Reuters poll of economists had predicted that inflation would rise to 7% from 6.8% in July due to higher oil prices.
According to the National Bureau of Statistics, the unexpected downturn was due to a decline in hotel accommodation costs and airfares, as well as a lower rate of increase in food prices than in August 2022.
Martin Beck, chief economic advisor at the EY ITEM Club, said core and services inflation, which subtracts volatile food and energy costs, also decelerated sharply, suggesting that “underlying inflation has reached an inflection point”. He said there was.
Recent signs of a slowdown in UK economic activity and a weakening job market could push inflation further down.
Gross domestic product contracted 0.5% in July after rising slightly in the second quarter, with production falling in most sectors.
And while wages are still growing at a record pace, the unemployment rate is rising, with job openings falling below 1 million for the first time in two years.
Meanwhile, the number of corporate bankruptcies in August increased by 19% from the same month last year to more than 2,300. This is higher than levels seen during the pandemic, when government support measures were in place, and higher than pre-pandemic figures.
“There’s an atmosphere of fundamental weakness,” Capital Economics’ Dales said of July’s gross domestic product (GDP) data. “Given that the dampening effect of rising interest rates should now be increasing, it would be natural for underlying economic growth to weaken.”