The Bank of England’s Monetary Policy Committee (MPC) has opted to keep interest rates steady at 3.75%. The decision, supported by a 6-3 vote, reflects ongoing uncertainty as global energy costs rise due to the conflict in the Middle East. While three members, including chief economist Huw Pill, advocated for a hike to 4%, the majority favored maintaining the current benchmark.
Governor Andrew Bailey noted that the economic outlook remains "hugely unpredictable." The Bank has revised its inflation forecast upward, expecting it to exceed 4% early next year, driven largely by substantial anticipated increases in household energy bills. Inflation currently sits at 3.1%, well above the Bank’s 2% target.
Despite the cautious outlook, the Bank reported that the UK economy has shown more resilience than previously anticipated, raising its growth projection for the third quarter to 0.4%. Additionally, food price inflation is now expected to reach 4% by year-end, a downward revision from earlier estimates of 6-7%.
In a separate move, the Bank announced a slowdown in its "quantitative tightening" program. By reducing the pace of government bond sales, the Bank aims to ease long-term borrowing costs. Following the announcement, yields on 10-year and 30-year government bonds saw a decline.
The decision comes as mortgage holders face rising costs. According to Moneyfacts, average two-year and five-year fixed residential mortgage rates have climbed to 5.77% and 5.83%, respectively. For many households, such as those transitioning from older, lower-rate fixed deals, the current environment necessitates significant adjustments to monthly budgets.
Source: BBC News
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