The Monetary Policy Committee of the Bank of England has announced that it will keep it unchanged The reference interest rate for its operation is 5.25%, the highest level since 2008. According to the organization, this decision has remained firm for the fourth time in a row.
Six votes were cast in favor of the decision to keep the interest rate stable. However, two members of the committee expressed their preference for a rate increase of a quarter point. This was brought down to 5.50%, while another participant proposed a reduction of a quarter point, keeping it at 5%.
Despite recent economic weakness, the Bank of England expects a gradual recovery in Britain’s GDP growth. This broadly reflects the progressive easing of restrictions that had previously limited expansion due to previous increases in interest rates. Meanwhile, the labor market is showing signs of softening, although it remains tight by historical standards, which could result in a rise in unemployment.
Regarding inflation, the inter-annual rate was cut to 4% in December 2023 due to a lower rise in fuel prices and basic goods and services. Apart from this, the salary increase has also decreased. The British central bank estimates that inflation will temporarily fall to 2% in The second quarter of 2024, and then grow again in the third and fourth quarters, especially due to the potential surge in energy prices in the second half of the year.
In this scenario, the entity expects inflation to reach about 2.7% at the end of the year, remaining above the target for most of the projected period. Despite the increasing slowdown in the economy, the Bank of England has warned of the persistence of internal inflationary pressures. As a result, it says monetary policy will have to remain accommodative for a longer period to ensure that inflation consistently returns to the 2% target over the medium term.