Bank of England maintains interest rate at 5 percent

The Bank of England has placed the UK’s interest rate on hold at 5 percent after it was reported that inflation rates stayed at 2.2 percent in August, above the bank’s 2 percent target.

The widely-expected decision was made following a meeting by the Monetary Policy Committee (MPC), who voted by a majority of eight to one to maintain the current interest rates.

The committee said that the vote came as it looks to “squeeze persistent inflationary pressures out of the system so as to return Consumer Price Index (CPI) inflation to the 2 percent target both in a timely manner and on a lasting basis”.

Regarding the decision, the bank said: “There was a range of views among [MPC, ed.] members on the degree to which the unwinding of past global shocks, the normalisation in inflation expectations and the current restrictive policy stance would lead underlying domestic inflationary pressures to continue to unwind, or whether these pressures could prove more entrenched, possibly as a result of more structural factors or greater momentum in demand.

“Despite these differences of view, the current policy stance was judged to be appropriate. For most members, in the absence of material developments, a gradual approach to removing policy restraint would be warranted.”

The decision had been largely anticipated by analysts, particularly in light of the most recent inflation report from the Office for National Statistics (ONS).

Here, while the CPI including owner occupiers’ housing costs (CPIH) rose by 3.1 percent in the 12 months to August 2024, unchanged from July, clothing and footwear welcomed a downward trend, with inflation dropping to 1.6 percent in August from 2 percent in the month prior.

Towards the end of the year, the bank is now anticipating that 12-month CPI inflation could increase to 2.5 percent, driven by drops in energy prices that could fall out of the annual comparison.