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Business reporter Dearbail Jordan reported that the Bank of England has decided to maintain UK interest rates at 4%. This decision comes amidst concerns about rising inflation, with prices currently increasing at nearly double the Bank’s target rate. While analysts had not anticipated a rate cut, the Bank expressed caution about when it would lower borrowing costs, stating that it expects inflation to eventually return to its 2% target.
In addition to holding interest rates steady, the Bank announced a slower reduction in the amount of government debt it holds. This adjustment in strategy follows recent financial market turbulence. The Bank had previously cut interest rates five times since August of the previous year as inflation slowed down. However, inflation has picked up since April, particularly driven by higher food prices.
Despite two members of the Monetary Policy Committee (MPC) advocating for a cut to 3.75%, the majority decided to maintain the current rate. The Bank indicated that any future rate cuts would depend on evidence of easing price pressures. Governor Andrew Bailey emphasized the need for gradual and careful reductions, highlighting the uncertain timing and scale of potential cuts moving forward.
Looking ahead, the Bank provided insight into businesses’ sentiments, noting a general sense of pessimism and uncertainty surrounding the government’s upcoming autumn Budget. The Bank’s regional offices conduct discussions with companies before interest rate decisions to assess business conditions. While consumer goods inflation remains modest overall, food inflation is notably high. Despite ongoing challenges, spending in sectors like hotel accommodation and tourism remains subdued, with demand centered around events such as concerts by bands like Oasis. Labor and food costs are driving up consumer-facing services prices, with firms passing on these increased expenses to customers
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