Bank of England Ends 14-Straight Interest Rate Hikes Due to Low Inflation
London – The Bank of England (BOE) made an announcement on Thursday ending a streak of 14 consecutive interest rate hikes after new data revealed that inflation is now running below expectations. This decision marks a significant shift in the Bank’s monetary policy.
Since December 2021, the Bank of England had been consistently increasing interest rates in an effort to control inflation. The main policy rate had been raised from 0.1% to a 15-year high of 5.25% in August. However, with the latest data showing inflation below projected levels, the Bank decided to halt the rate hikes.
In response to the announcement, the British pound experienced a 0.7% drop against the U.S. dollar.
The Bank’s Monetary Policy Committee held a vote at its September meeting, with a majority of 5-4 in favor of maintaining the interest rate at its current level. However, four members of the committee preferred an additional 25 basis point hike to raise the rate to 5.5%.
In a statement, the Bank acknowledged the impact of tighter monetary policy on the labor market and the overall economy. They stated, “The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labor market conditions and the behavior of wage growth and services price inflation.”
Additionally, the Monetary Policy Committee unanimously voted to reduce the Bank’s stock of U.K. government bond purchases by £100 billion ($122.6 billion) over the next 12 months, bringing the total to £658 billion.
Investors had anticipated the pause in the interest rate hike cycle following lower-than-expected U.K. inflation in August. The consumer price index rose by 6.7%, falling short of the July figure of 6.8%. Core CPI, which excludes volatile items, dropped even further to 6.2%, down from July’s 6.9%.
Leading up to the decision, money markets were split on whether the Bank would pause or opt for another 25 basis point hike. However, it ultimately swung in favor of a hike, but the Bank chose to end the rate hikes altogether.
The Bank of England has been cautious in its approach, maintaining a delicate balance between tackling inflation and avoiding a recession in the robust U.K. economy. The country’s GDP contracted by 0.5% in July, and several British companies issued profit warnings earlier this week.
Meanwhile, the U.S. Federal Reserve decided to keep interest rates unchanged on Wednesday but hinted at one more hike before the end of the year. The Fed also revised its projections for fewer interest rate cuts in 2024 compared to previous expectations.