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Bank of England holds base rate at 4.25% amid economic uncertainty
The Bank of England’s Monetary Policy Committee (MPC) voted 6-3 to maintain its base rate at 4.25%, signalling caution amid global trade uncertainties and domestic economic challenges.
The decision reflects a delicate balance act the central bank is facing between curbing inflation and supporting growth.
Three members dissented, voting for a rate cut citing a softening labour market and subdued consumer demand.
The MPC noted that underlying UK GDP growth remains weak, while the labour market is ‘loosening’ – i.e. more people are losing jobs.
Consumer Price Index (CPI) inflation is expected to peak at 3.7% in September before stabilising just below 3.5% by the end of 2025.
Uncertain picture for household finances
The Bank’s most recent decision is taken against a persistently unclear outlook for households to plan against.
Most watchers believe it will cut its rate to 4% in August, eventually reaching 3.5% some time next year. But the MPC has taken a ‘two steps forward, one step back’ approach for some time, disappointing mortgage holders in particular.
Nicholas Hyett, investment manager at Wealth Club explains why the situation is so complicated: “The Bank of England’s goal over the last two years has been to slowly bring down inflation without crashing the economy – achieving a so-called soft landing, that’s not easy at the best of times let alone when the economic data is unreliable.
“Official data suggests the Bank has so far done a pretty good job, with the UK labour market holding up well. The problem is that data has never been more unreliable, and elsewhere there are signs of strain. Just this morning recruiter Hays said that it is experiencing significant weakness, with a 13% revenue fall in UK & Ireland as hiring for permanent positions softens.
“Inflation numbers too are subject to uncertainty and had to be restated last month after an error in the data. Conflict in the Middle East risks higher energy prices potentially pushing inflation higher – though calling the course of events there is almost certainly a mugs game, and the Bank has said that under current conditions it expects inflation to remain broadly at current levels for the rest of the year.
“The risk is that all the uncertainty leaves the Bank paralysed, with rates stuck at their current level. With uncertain data, policy setters will need a really compelling reason to hike or cut interest rates and that could result in default driven decisions.”
Photo credits: pexels
