The Bank of England has halted its interest rate hike for the first time in nearly two years, maintaining the UK’s main borrowing cost at 5.25%. This decision follows a series of successive increases, marking the highest level since February 2008. The Federal Reserve and Switzerland’s central bank have also kept rates steady.
The move brings relief to struggling UK households, potentially leading to upcoming cuts in mortgage rates. The decision, reached by a narrow vote, involved five committee members supporting the current rate, while four advocated a quarter-point increase to 5.5%.
While the Bank of England didn’t rule out future rate hikes, it hinted at the need for sustained high borrowing costs to ensure a lasting reduction in inflation. Analysts see this decision as a significant relief for households grappling with rising prices and high borrowing expenses.
The decision may signal a peak in the current tightening cycle, offering hope that borrowing costs could be on the decline. Improved inflation figures are expected to pave the way for lenders to reduce mortgage rates in the coming weeks.
Recent data revealing a lower-than-expected 6.7% increase in consumer prices in August contributed to the Bank of England’s decision. Factors such as lower hotel and airfare costs, along with a slower rise in food prices, played a role. Core inflation and services inflation also showed a notable slowdown, suggesting an inflection point in underlying inflation.
A slowdown in UK economic activity and signs of a weakening job market could further contribute to lowering inflation. Despite a slight increase in wages, unemployment has risen, and vacancies have dropped below 1 million for the first time in two years. The recent uptick in company insolvencies adds to concerns about underlying economic weakness.
In summary, the Bank of England’s decision to pause the interest rate hike reflects unexpected drops in inflation and growing indications of economic challenges.