Bank of England Holds Interest Rates Steady
The Bank of England (BoE) has chosen to keep the Bank Rate unchanged at 4.00 per cent, following a narrowly split vote within the Monetary Policy Committee (MPC), with a 5–4 decision.
UK Economic Overview
The UK economy remains complex and presents mixed signals. Inflation is significantly above the 2 per cent target, with headline Consumer Price Index (CPI) at approximately 3.8 per cent. Meanwhile, the unemployment rate has reached about 4.8 per cent, marking the highest level seen in three years.
Labour Market and Industrial Activity
- Labour-market indicators have softened recently.
- Manufacturing activity continues to contract, with the Purchasing Managers’ Index (PMI) staying below the neutral 50-point level for twelve consecutive months.
- This persistent weak performance in the industrial sector highlights ongoing challenges for productivity.
Monetary Policy Challenges
The BoE faces a difficult balancing act: supporting economic activity while containing inflationary pressures that remain elevated. The mixed economic data complicate decision-making for the MPC.
The BoE must balance support for activity against the risk of re-igniting inflation.
Additionally, external factors, particularly policy moves by the U.S. Federal Reserve, add further complexity to setting domestic interest rates.
Market Reaction
Following the announcement, the pound traded at USD 1.3138, recovering slightly amid the decision to hold rates steady.
Summary
The Bank of England’s decision reflects the challenging economic environment, balancing stubborn inflation against weakening labour market and industrial output amid external uncertainties.