Bank of England Holds Base Rate at 5.25%... "Long Way to Go to Solve Inflation"

Three Consecutive Freezes... Highest Level in 15 Years

The Bank of England (BOE), the central bank of the United Kingdom, decided on the 14th (local time) to keep the base interest rate at 5.25%.

According to Bloomberg and other sources, the BOE held a monetary policy meeting on the day and decided to maintain the base interest rate at 5.25% for the third consecutive time. The current rate is the highest level in 15 years. Among the nine monetary policy committee members, six voted to hold the rate steady, while three favored a hike.

[Image source=EPA Yonhap News]

The BOE maintained its guidance that interest rates need to be "sufficiently restrictive for a prolonged period" to curb high inflation levels. The BOE explained that it is still too early to be confident that inflation is showing a sufficient downward trend. Recently, the UK's Consumer Price Index (CPI) stood at 4.6%, more than double the target (2%), and is the highest among the Group of Seven (G7) countries.

Andrew Bailey, Governor of the BOE, said there is "still a long way to go" in terms of curbing inflation.

The BOE began raising interest rates in December 2021, earlier than the US or the Eurozone, as inflation started to rise first in the UK. It then implemented a total of 14 consecutive rate hikes until August this year, raising the base rate from 0.25% to 5.25%. As the UK's CPI sharply dropped from 10% in January to 4.6% in October this year, the BOE stopped raising rates in September and has held the rate steady three times since then.

While the BOE continues to emphasize controlling inflation, experts assess that these measures have pushed the UK economy into a recession phase. The BOE forecasted last month that the economic growth rate (GDP) for the fourth quarter of this year will increase by 0.1%.

Meanwhile, Jerome Powell, Chair of the US Federal Reserve (Fed), effectively signaled a pause in rate hikes the day before, raising market expectations by suggesting the possibility of three rate cuts next year. In a press conference following the rate hold announcement, Powell stated, "It appears that the policy rate has reached or is near its peak in this tightening cycle." He also disclosed that there was discussion during the meeting about when to start cutting rates.

The European Central Bank (ECB) is also scheduled to announce its base interest rate on the same day.