- Bank of England holds base rate at 3.75% for the fourth time in a row
- Seven Monetary Policy Committee (MPC) members voted to hold, but two voted to raise the base rate
- Inflation is now expected to peak at around 3.25% in Q4
Danni Hewson, AJ Bell head of financial analysis, comments on the latest Bank of England interest rates decision:
“The Bank of England has once again proved to be a reliable partner, delivering the much-anticipated interest rate hold as the inflationary outlook continues to fluctuate.
“It’s an indication of how complex the global outlook remains that two members of the MPC voted to proactively hike rates, in much the same way that the ECB did last week. Europe’s central bank went further and faster with its rate cuts, but the Bank of England’s current hold at 3.75% could be considered restrictive enough to keep a lid on inflation at a time when the UK economy is struggling to maintain forward momentum.
“With the peace deal now signed by both the US and Iran, the price of oil has plummeted to $78 a barrel and the Bank of England now believes inflation will top out at around 3.25% in the final quarter of the year. This is way below the worst-case scenario that had been set out as a potential outcome at the last meeting.
“But there is need for continued caution. The situation in the Middle East remains delicate and the months long blockade of the Strait of Hormuz won’t just magically disperse, with the damage done to critical energy infrastructure potentially taking years to repair.
“Some price rises are already baked in, with the outgoing Apple boss Tim Cook the latest business leader to warn that tight supply of memory chips is causing price hikes that Apple will ultimately have to pass on to their end customers.
“Households and businesses might do a lot of the heavy lifting themselves. Confidence has been knocked and memories of the last cost of living crisis are likely to alter consumer behaviour as the nights draw in and smart meters start ticking up. But there is a feeling that things could be shifting, and that the downward path for interest rates has just been stalled and not completely rerouted.”
