(qlmbusinessnews.com . Sat 20th Sep, 2025) London, UK —
Inflation Battle Continues: UK Central Bank Holds Rates Steady, Warns of Long Fight Ahead
Interest Rates in the UK Maintained at 4% Amid Inflation Concerns, Says Bank of England Chief
In a closely monitored decision, the Bank of England has maintained the United Kingdom's interest rates at 4%, with the central bank's governor issuing a caution that the battle against inflation is far from over.
Despite market analysts not forecasting a reduction in interest rates—crucial for influencing both borrowing costs and savings returns—due to the current inflation rate almost doubling the Bank's 2% objective, calls for fiscal prudence were heeded.
Admitting that while an eventual return to the target inflation rate is anticipated, the Bank expressed a cautious stance regarding any imminent lowering of borrowing costs.
In a move linked to recent financial market disturbances, the Bank also declared a deceleration in its reduction of government debt holdings, emerging only weeks following market tumult.
Since August of the previous year, there have been five instances of interest rate cuts by the Bank in response to a slowing inflation rate. Nevertheless, a reversal has been observed since April, with inflation on the rise again, propelled by increasing food prices among other factors.
Despite holding the rates steady in the latest decision, the Bank revealed a split within its Monetary Policy Committee (MPC)—with two out of nine members voting in favour of a cut to 3.75%.
The MPC, set to convene two more times within the year, will contemplate further rate adjustments based on emerging evidence of diminishing price pressures.
Bank governor Andrew Bailey underscored the need for a cautious approach towards any future cuts, highlighting the uncertain landscape. He hinted at possible rate reductions ahead, albeit with an unpredictable trajectory.
Additionally, the Bank has opted to slow down the pace at which it divests from its stockpile of UK bonds, accumulated primarily during past crises to stimulate the economy.
As Chancellor Rachel Reeves gears up for the Budget announcement on 26 November, the elevated debt servicing costs pose a challenge to fiscal manoeuvrability, given the substantial national debt and predefined economic rules.
The Bank's peak bond holdings stood at £875bn, with a current strategy to lessen its debt ownership by about £100bn annually through “quantitative tightening.” This pace, however, will be reduced to £70bn a year starting October, Bailey confirmed, aiming to balance plan continuation with minimal market disruption.
The upcoming autumn Budget emerges as a focal point of business uncertainty, with a surveyed downbeat sentiment among firms, as noted by the Bank's regional offices.
Inflation specifics reveal a mixed picture; while consumer goods inflation remains modest in several areas, food inflation is notably high. Recent data indicated a 3.8% inflation rate year-on-year to August, with significant rises in food and non-alcoholic drinks costs.
The Bank also observed subdued spending across various sectors, including tourism and hotel accommodation in the UK, with any notable demand mainly linked to specific events.
In response, Shadow chancellor Sir Mel Stride criticised the delayed reduction in interest rates as a consequence of Labour's economic decisions, which he claims have exacerbated inflation pressures.
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