On Thursday, September 21, 2023, the Bank of England made a significant decision by refraining from raising interest rates, marking a pause in the streak of consecutive rate hikes.
In the preceding month of August, the Monetary Policy Committee (MPC) had opted to increase the base rate by 0.25%, elevating it from 5% to 5.25%. This move aimed to curb the surging inflation. However, September 21, 2023, is noteworthy as it signifies the first instance in 21 months that the central bank has opted not to raise rates, breaking a trend of 15 consecutive rate hikes.
This decision was not taken lightly, as the committee found itself divided, with a vote of 5-4 in favor of maintaining the status quo. The unexpected drop in inflation figures on September 20, 2023, played a pivotal role in the MPC's decision to maintain interest rates at 5.25% for the month.
Since the previous MPC meeting, global economic growth has, for the most part, adhered to the projections outlined in the August Report, though there have been variations among different regions. Notably, spot oil prices have experienced a substantial increase, and underlying inflationary pressures have remained high across advanced economies.
Chancellor Jeremy Hunt, commenting on the decision to hold the base rate, remarked, "We are starting to see the tide turn against high inflation, but we will continue to do what we can to help households struggling with mortgage payments. Now is the time to see the job through. We are on track to halve inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down."
Despite the announcement, the Bank of England emphasized that the possibility of future rate increases is not off the table. In its rationale for maintaining the base rate, the Bank stated that a "sufficiently long" period of restrictive monetary policy is necessary. The Bank clarified, "Monetary policy will need to be sufficiently restrictive for sufficiently long enough to return to the 2% target sustainability in the medium term, in line with the Committee's remit. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures."
The next meeting of the Monetary Policy Committee is scheduled for Thursday, November 2, 2023.
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