Bank of England holds course in inflation fight

LONDON: The Bank of England (BoE) looks set to hold borrowing costs at a 15-year high and signal that it does not plan to cut them anytime soon as it remains locked in a battle against the most elevated inflation rate among the world’s rich economies.

Despite strain in the economy that some see as a sign of a recession starting, the BoE is expected to keep Bank Rate at 5.25% for a second meeting in a row after 14 back-to-back increases, a Reuters poll of economists showed last week.

Last week, the European Central Bank (ECB) kept rates unchanged and the US Federal Reserve did the same on Wednesday as they wait to see if the worst inflation outbreak in decades has really been quelled.

The BoE’s Monetary Policy Committee (MPC) is facing an inflation rate more than double that of the eurozone and almost twice the US rate. It voted by only a narrow five-to-four margin in September to halt its run of increases in borrowing costs.

But signs of a slowdown in much of the British economy have become clearer since then and some economists said a recession might already be under way.

Mike Riddell, a senior portfolio manager at Allianz Global Investors, said the long lags between changes in rates and their impact meant most of the BoE’s increases in borrowing costs between late 2021 and August this year was yet to be felt.

“The BoE will most likely therefore be keen to keep all options open, but seems set to wait and observe how much pain the previous hikes have caused before changing rates again in either direction,” Riddell said.

BoE governor Andrew Bailey and other top officials at the central bank have acknowledged that their rate hikes to date are weighing on the economy. But they have also stressed they will not flinch in their task of bringing inflation down.

The BoE, which some economists and politicians criticised for not sounding aggressive enough about quashing the surge in prices early on, has said it is determined to stamp out the long-term inflation risks to the economy, chief among them strong rises in pay growth.

Although inflation has fallen from 11.1% just over a year ago to 6.7% in the most recent data, it remains more than three times the BoE’s 2% target. — Reuters