Bank of England Holds Interest Rate at 4.75%, Cites ‘Heightened Uncertainty’

The Bank of England (BoE) has maintained its main interest rate at 4.75%, emphasizing a cautious approach amid a challenging economic environment marked by rising inflation and sluggish growth.

Inflation Above Target

Inflation in the UK increased to 2.6%, surpassing the BoE’s 2% target, prompting the nine-member Monetary Policy Committee to hold rates steady to avoid stoking inflation further. This marks a shift from the bank’s rate cut in November.

Dissent Among Policy Members

Three committee members voted for a quarter-point rate cut, signaling a potential reduction in February if inflation surprises remain muted. Governor Andrew Bailey reiterated the need for a measured approach:
“We need to make sure we meet the 2% inflation target on a sustained basis… heightened uncertainty prevents us from committing to specific rate cuts in the coming year.”

Economic Pressures

The UK economy has contracted for two consecutive months, straining sectors like housing and small businesses. The BoE’s cautious stance offers little immediate relief for households grappling with rising mortgage costs and businesses facing higher expenses.

Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales, remarked:
“The decision to hold rates, while expected, is a blow to households and businesses struggling with mounting financial pressures.”

Global Comparisons and Fiscal Challenges

The BoE’s decision contrasts with the U.S. Federal Reserve’s recent rate cut, albeit with a slowdown in their pace of easing. Meanwhile, the UK’s new Labour government faces criticism over its October budget, which critics claim has heightened inflationary pressures through higher business taxes, while simultaneously dampening economic growth.

Broader Context

Inflation rates globally have declined from multi-decade highs, thanks to aggressive rate hikes by central banks. However, uncertainty looms with Donald Trump’s return to the U.S. presidency in January, as potential tariffs and retaliatory measures could disrupt global trade and stoke inflation.

Despite falling inflation, economists warn that interest rates are unlikely to return to the ultra-low levels seen post-2008 financial crisis.