The Bank of England (BoE) today decided to keep interest rates at a 15-year high of 5.25 per cent during its final meeting of the year. The decision, which marks the third consecutive time interest rates have remained unchanged, comes as the UK grapples with a frail economy and concerns about future growth prospects.
The Battle Against Inflation
The BoE has been on a relentless campaign to curb soaring inflation, with interest rates having been hiked in 14 consecutive meetings. Despite inflation falling from over 10 percent in January to 4.6 percent in October, Governor Andrew Bailey emphasized that there is still work to be done. The MPC's decision reflects a cautious approach, maintaining a "restrictive" policy for an extended period to further drive down inflation to the 2 percent target.
Economic Challenges Persist
The decision to keep interest rates high is not without criticism. The central bank acknowledges concerns about Britain's weak economic growth prospects, with the Monetary Policy Committee (MPC) acknowledging that economic growth is likely to be broadly flat in the coming quarters. Higher borrowing costs are expected to put pressure on consumer spending, despite growth measures outlined in the Autumn Statement.
Market Response
Following the BoE's decision, the pound experienced a positive uptick against the US dollar and euro, signalling initial market approval. However, the long-term effects on the economy remain uncertain, and some analysts warn of a prolonged period of near-zero growth, potentially extending the time it takes for the UK economy to recover.
The Bank of England's decision to maintain interest rates at a 15-year high reflects a delicate balancing act between curbing inflation and supporting economic growth. As the UK faces economic headwinds, the impact of this decision on households, businesses, and the broader economy will unfold in the coming months.
