Bank of England Holds Interest Rates and Cautions Against Early Reduction.

(qlmbusinessnews.com Mon, 6th Nov, 2023) London, UK —

Interest Rates Remain High as Bank of England Cautions Against Early Reduction, Casting Doubt on UK's Economic Revival

The Bank of England has cautioned that the United Kingdom's economy is expected to experience zero growth until 2025, while interest rates will either remain high for an extended period or potentially rise further. This announcement comes as the Bank decides to keep rates on hold at 5.25%, maintaining the highest level seen in the past 15 years.
Despite Chancellor Rishi Sunak's commitment to revive the UK's growth by the end of the year, these revised forecasts cast doubt on the feasibility of this goal. Bank Governor Andrew Bailey emphasized that it is “much too early to be thinking about rate cuts” given the current circumstances.

However, the Bank does anticipate a significant decline in inflation, which measures the rate at which prices increase, in the upcoming months. This suggests that Prime Minister Boris Johnson remains on track to achieve his promise of halving inflation to around 5% by the end of the year.
Until September, the Bank of England had raised interest rates 14 consecutive times to counter soaring inflation, which had been placing a strain on household budgets. While this resulted in higher mortgage payments, it also led to increased savings rates.

Mr. Bailey stated, “We will keep interest rates high enough for long enough to make sure we get inflation all the way back to the 2% target. We'll be watching closely to see if further rate increases are needed.”
The most recent inflation figure stood at 6.7% for the year ending in September. The Bank anticipates a continued decline as energy and food price hikes ease, with the expectation that inflation will hover around 3% throughout the next year, surpassing the 2% target.

Regarding potential risks, Mr. Bailey highlighted the Israel-Hamas conflict, expressing concern over its potential to impact energy prices if it spreads throughout the Middle East. However, he noted that energy prices have not experienced significant movement yet, which he finds encouraging.

Although the Bank is not predicting a recession, it foresees zero growth from the present time throughout next year, which coincides with a likely general election, and extending into 2025.
“The UK economic growth is slowing,” stated the Bank.

Mr. Bailey described the outlook for UK economic growth as “subdued,” but he emphasized that this situation is not uncommon. Germany, as Europe's largest economy, has also experienced periods of recession.

Chancellor Jeremy Hunt assured that measures would be implemented to stimulate Britain's growth when the government unveils its plans to boost the economy in the Autumn Statement later this month.

“The Autumn Statement will outline how we will enhance economic growth by unlocking private investment, increasing employment rates, and delivering a more productive British state,” stated Hunt.

However, the Labour Party argued that 13 years of “economic failure” had left working people worse off, while the Liberal Democrats regarded the decision to maintain interest rates as “cold comfort for the millions of hardworking families.”

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