The Bank of England (BoE) has opted to maintain interest rates at 5 per cent in its latest monetary policy review. The decision by the Monetary Policy Committee (MPC) was reached with a majority of 8-1, with one member advocating for a reduction to 4.75 per cent.
Governor Andrew Bailey defended the decision, emphasizing the importance of keeping inflation in check. “It is essential that inflation remains low,” Bailey stated. “We must be cautious not to lower rates too quickly or too significantly.”
According to BBC News, this announcement follows the release of the UK’s inflation data, which held steady at 2.2 per cent for the year to August, despite rising flight costs.
The Confederation of British Industry (CBI) responded to the BoE’s decision, acknowledging the delicate balance between managing inflationary risks and avoiding overly restrictive measures that could hinder economic growth.
For further insights into today’s BoE decision and an explanation of when interest rates might start to decline, you can explore additional resources from our team.
According to the Office for National Statistics, inflation stood at 2.2 per cent in the year leading up to August.
The rate was slightly above the Bank of England’s 2 per cent target for the second month in a row, after prices also rose by 2.2 per cent in the year to July.
This means the cost of goods and services are still rising overall but much slower than they were until recently. Inflation hit a peak of 11.1 per cent in October 2022, driving a cost of living crisis.
Price growth in the services sector was higher in the year to August, at 5.6 per cent, driven primarily by a jump in the cost of flights. It was also up from 5.2 per cent in July.
The Bank of England pays close attention to rising prices in the services sector, which accounts for a large chunk of the UK economy.
One industry that was hoping for a rate cut today is the hospitality sector, which was massively hit by the pandemic.
Many businesses in the sector are still paying off Covid loans, taken out in order to keep in business.
Chief executive of UKHospitality Kate Nicholls says “It’s disappointing that interest rates will remain unchanged, after another month of stabilised inflation.”
She says the Bank should have been emboldened to take action, which would have given businesses confidence, and “crucially for hospitality, begin to relieve the pressure of Covid loan repayments”.
“These repayments remain a significant burden for businesses, particularly with interest rates remaining high,” she adds.
Relatively high interest rates haven’t just been tough for homeowners.
Renters have faced growing costs too – that’s because many landlords have seen their monthly mortgage repayments get more expensive.
Combined with other pressures, it has led some to increase the rent they charge or decide to sell up.
The result, according to official figures from the Office for National Statistics (ONS), is average rent rising at 8.4 per cent in the UK, external. Some of the edge is coming off those costs, with annual rent rises slowing from 8.6 per cent a month earlier.
Yet, the pressure of a host of monthly bills, from housing costs to heating and food mean household budgets continue to be stretched.