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Bank of England leaves rate unchanged before UK budget / Photo: © AFP
NYSE - LSE
Bank of England leaves rate unchanged before UK budget
The Bank of England kept its key interest rate at 4.0 percent Thursday, opting against a cut before the UK government's annual budget this month set to feature tax rises.
"We still think rates are on a gradual path downwards, but we need to be sure that inflation is on track to return to our two-percent target before we cut them again," BoE governor Andrew Bailey said in a statement following the widely-expected decision.
In a close result, policymakers including Bailey voted 5-4 to maintain the rate. Four members of the Monetary Policy Committee (MPC) called for a cut to 3.75 percent.
While UK annual inflation sits at 3.8 percent, the country's economic growth has stagnated.
A cut to interest rates would likely have eased pressure on Prime Minister Keir Starmer's Labour government after finance minister Rachel Reeves on Tuesday paved the way for controversial tax hikes in her November 26 budget.
The chancellor of the exchequer warned of "necessary choices" as Britain struggles with high debt and inflation.
"As I take my decisions on both tax and spend, I will do what is necessary to protect families from high inflation and interest rates," Reeves said in a speech.
Britain's retail banks tend to pass on BoE rate cuts to their customers, easing the cost of mortgages and business loans.
- Unclear outlook -
The BoE last cut its key rate in August amid concerns over the impact of US tariffs on the UK economy.
It was the bank's fifth reduction since the central bank began a trimming cycle in August 2024, one month after Labour won a general election.
BoE minutes of the latest meeting avoided "strong hints that rates will be cut" at the next gathering in December, noted Capital Economics chief UK economist Paul Dales.
"Much will depend on what is in the budget and also whether... (UK economic) releases between now and that meeting give the MPC more confidence that inflation is falling as it expects," he added.
Reeves this week refused to rule out rises to income and valued added taxes amid speculation that at least one of them could increase in the budget to fund investments to public services.
She hiked a tax on businesses in her inaugural budget last year -- a move that has been blamed for Britain's weak economic growth.
UK gross domestic product slowed to 0.3 percent in the second quarter following 0.7-percent expansion to GDP in the first three months of this year.
S. Alves--JDB
