Bank of England Keeps Interest Rate at 4 Percent

(MENAFN) The Bank of England maintained its key interest rate at 4% on Thursday, as anticipated by market analysts, marking the end of a series of five consecutive rate cuts that began in August of the previous year.

In its official statement, the bank noted the substantial reduction in inflation over the past two and a half years, attributing much of this progress to external factors and the restrictive monetary policy. "There has been substantial disinflation over the past two and a half years, following previous external shocks, supported by the restrictive stance of monetary policy," the bank said.

Despite this, the Bank of England emphasized its commitment to eliminating persistent inflationary pressures. "That progress has allowed for reductions in Bank Rate over the past year. The Committee remains focused on squeezing out any existing or emerging persistent inflationary pressures, to return inflation sustainably to its 2% target in the medium term," it added.

The bank acknowledged continued underlying disinflation but pointed out that wage pressures had eased more significantly than price inflation. "Twelve-month CPI inflation was 3.8% in August, and is expected to increase slightly in September, before falling towards the 2% target thereafter," it said.

Cautioning against potential inflationary risks, the Bank of England warned that the temporary rise in inflation could trigger upward pressures in wages and prices. "The Committee remains alert to the risk that this temporary increase in inflation could put additional upward pressure on the wage and price-setting process," the statement explained.

Economic growth remains subdued, in line with a softening labor market and ongoing economic slack. "Underlying UK GDP growth has remained subdued, consistent with a continued, gradual loosening in the labor market, as well as a margin of slack in the economy. Downside domestic and geopolitical risks around economic activity remain," the bank warned.

The central bank emphasized that future adjustments to monetary policy would be made cautiously and gradually. It noted that the restrictiveness of monetary policy has decreased with the reduction of the Bank Rate, and the timing and pace of further reductions will depend on the extent to which underlying disinflationary pressures continue to ease.

The decision was made following a 7-2 vote by the Bank of England's Monetary Policy Committee. August's consumer inflation stood at 3.8%, unchanged from July, and at its highest level since January 2024.

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