The Bank of England held interest rates at the highest levels in 15 years on Thursday, though policymakers were again divided on the best course of action to stamp out high inflation.
Six members of the central bank’s nine-member rate-setting committee voted to keep rates at 5.25 percent amid signs that inflation would continue to ease and the economy was weakening. But they said restrictive monetary policy would be needed for an “extended” period of time, a stronger stance than before, according to the minutes of this week’s policy meeting.
“Higher interest rates are working and inflation is falling,” Andrew Bailey, the governor of the bank, said in a written statement. He voted to hold rates. But the bank needed to see inflation falling “all the way” to its 2 percent target, he added, and so policymakers would be “watching closely to see if further rate increases are needed.”
While Britain braces for this long period of high rates, the economic outlook has darkened. The economy would flatline for most of the next two years, the bank said in projections that accompanied Thursday’s decision. The forecasts also highlighted the challenge policymakers face eradicating high inflation, which stuck at 6.7 percent in September. In 2024 and 2025, the inflation rate is expected to be slightly higher than was forecast a few months ago. For example, inflation would slow to 3.4 percent at the end of next year, compared with a previous forecast of 2.8 percent.
Three other committee members voted to raise rates another quarter-point to ward against the risks of “more deeply embedded inflation persistence,” the meeting minutes said. Even though the economy was weakening, household incomes were growing because of lower inflation and indicators of economic output remained positive, they said.
This was the second consecutive meeting that rates were held steady, ending a nearly two-year run of rate increases to tackle stubbornly high inflation. At the previous meeting in late September, a slim majority of five voted to hold rates.
Thursday’s decision mirrors ones made by the Federal Reserve on Wednesday and the European Central Bank last week to leave interest rates unchanged because there was evidence that tight monetary policy was cooling their economies and easing inflation pressures. All these central banks left open the possibility of further rate increases, but have shifted their focus to how long rates will stay at these levels to ensure inflation returns to their 2 percent targets.