THEto the Bank of England it does not follow in the wake of other central banks and, due to one inflation and wage growth too high, she feels forced to maintain interest rates on a higher level than 4.75%. Therefore nothing has been done for the last meeting of the year, but the decision was somewhat expected, after inflation data released yesterday 18 December.
The interest rate decision
The Monetary Policy Committee (MPC), meeting this morning, voted with a majority of 6–3 to maintain the interest rate reference rate at 4.75%. THE three members who voted against, they would have preferred to reduce the bank rate by 25 basis points at 4.5%. The BoE Committee made the two monetary policy choices with the aim of achieving inflation of 2% “in a timely and sustainable manner” and with the dual objective of helping to support growth and employment. For this reason it adopts a far-sighted and medium-term approach.
At the last meeting at the beginning of November, the Monetary Policy Committee had decided by a large majority to reduce rates by a quarter of a point to 4.75%, noting an improvement in the inflation rate.
The price trend
Since the previous meeting, the BoE noted a new surge ininflation, which increased to 2.6% in November from 1.7% in September. This value turned out to be slightly higher than expected, largely due to stronger growth in the prices of primary goods and food products.
Second Richard FlaxChief Investment Officer of Moneyfarm, the latest data on price growth “reveal a worrying trend” and highlight “the persistence of inflationary pressures on the British economy, induced by factors such as the increase in wages“, which the BoE expects to increase on average between 3% and 4% in 2025.
And the situation won’t improve anytime soon. In fact, the BoE expects that inflation continues to increase slightly in the short term. Although household inflation expectations have largely normalized, some indicators have increased recently.
Approach remains gradual
The Monetary Policy Committee it is also monitoring the impact on growth and inflationary pressures of the measures announced with the Autumn budget lawthe impact of geopolitical tensions and the uncertainty of trade policy. These developments have generated further uncertainty about the economic outlook.
The Committee continues to closely monitor i risks of persistence of inflation and will assess the extent to which data developments are consistent with tighter supply, which could support inflationary pressures, or weaker demand, which could lead to the emergence of spare capacity.
The BoE still considers “a gradual approach is appropriate aimed at removing monetary policy restrictions” and believes that “monetary policy will have to continue to remain restrictive for a sufficiently long period until the risks of a sustainable return of inflation to the 2% target in the medium term have further dissipated.”
For this reason the Committee will decide meeting by meeting the appropriate degree of monetary policy tightening.
