The Bank of England has kept interest rates on hold amid concerns over rising inflation, despite a worsening economic slowdown and early signs of a slump in the jobs market.
In a decision widely expected in the City, the Bank’s rate-setting monetary policy committee (MPC) voted by a majority of six to three to leave borrowing costs at the current rate of 4.75%.
Reflecting a cautious approach to bringing down the cost of borrowing, the central bank said maintaining rates at among the highest levels in 15 years was required to squeeze lingering inflationary pressures out of the economy.
Financial markets had indicated a 90% probability of a hold decision after official figures released on Wednesday showed inflation rose to an eight-month high of 2.6% in November, up from 2.3% in October and above the Bank’s 2% target set by the government.
Figures on Tuesday also showed annual wage growth accelerated to 5.2% in October, with fears that bigger payroll costs bills will lead to higher prices adding to the pressure on the Bank to delay more rate cuts. The Bank has trimmed borrowing costs twice this year from a peak of 5.25%, most recently in November.
The Federal Reserve cut US interest rates on Wednesday by a quarter of a percentage point to a range of between 4.25% and 4.5% but suggested it would make fewer rate cuts than expected in 2025. The news sparked a sell-off in financial markets.
Threadneedle Street has signalled that UK borrowing costs are likely to be reduced further. The Bank has said it is monitoring how companies respond to the chancellor Rachel Reeves’s budget, amid warnings that tax increases and the rise in the minimum wage could stoke inflationary pressures.
However, activity in Britain’s economy has weakened in recent months, with output shrinking unexpectedly by 0.1% in October. Companies shedding jobs could add to slack in the labour market, where data this week indicated businesses are cutting staff at fastest rate since 2021, fuelling calls for a return to a rate-cutting cycle.
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