Inflation: Interest rates stuck at 5.25% for fourth consecutive time

A controversial decision from the Bank of England’s Monetary Policy Committee as revealed that UK inflation rates will once again stay at 5.25%.  

The battle to lower inflation rates is one that is continuously being fought by the Bank of England. Back in December 2021 the Bank began increasing rates and continued to do so 14 times until August 2023 – when they hit 5.25%.

Although the saying goes ‘what goes up must come down’, unfortunately it can’t be applied here, as the Bank of England are yet to lower rates. This morning, officials from the Bank declared that for the fourth time in a row figures would stay at 5.25%, because it looks as though the UK is on the brink of a recession.

However, this decision was not taken lightly. In a rare three-way split, two members of the Bank’s Monetary Policy Committee (MPC) preferred to increase the Bank rate by 0.25% so the total would sit at 5.5%. One other member preferred to reduce the rate so it would sit at 5%.

In a statement, the Bank said: ‘Six members (which include Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Huw Pill and Dave Ramsden) voted in favour of the proposition.

‘Three members voted against the proposition. Two members (Jonathan Haskel and Catherine L Mann) preferred to increase Bank Rate by 0.25 percentage points, to 5.5%. One member (Swati Dhingra) preferred to reduce Bank Rate by 0.25 percentage points, to 5%.’

Below is a video from X (formely known as Twitter) of governor Andrew Bailey explaining why the Bank made the decision to keep interest rates the same:

Commenting on the news, William Marsters, Sales Trader at Saxo UK, said: ‘Two calls for a rate hike and one call for a rate cut may seem very disjointed from the Bank of England’s MPC. But it is really a reflection of the difficulties the central bank is facing. Markets have set their sights on cuts this year, so much so that both the ECB and the Fed have made a point to realign expectations on the speed and depth.

‘For the BoE, they are still facing the highest nominal inflation rate in the G7 whilst also sporting low growth. Given these factors, the split decision is no surprise. Directional conviction for UK markets may remain elusive until inflation is more under control.’

In addition, other industry professionals have echoed a similar tone. Sekar Indran, Senior Portfolio Manager at Titan Asset Management, claimed the decision has put the Bank of England is a ‘less fortunate decision’.

‘Bailey offered a not-too-dissimilar tone to his peer across the pond, Jerome Powell, stating further evidence of inflation easing is needed before we see a rate cut,’ Indran said. ‘The reality is the MPC is in a less fortunate position than the FOMC with the highest inflation in the G7 and economic growth among the lowest.’

Indran added: ‘The downturn in manufacturing output also shows no signs of abating as per this morning’s PMI data with demand continuing to soften and supply chain disruptions re-emerging.

‘The swaps market continues to price that the US will move first which we would agree with, but we believe the magnitude of cuts may end up being greater in the UK relative to the US, contrary to what the market is pricing.’

News of interest rates staying the same have also left UK households devastated. Throughout this winter thousands of people have had to go without sufficient heating or food as a result of squeezed budgets. According to recent figures from the Joseph Rowntree Foundation (JRF), around one million households have said that since May 2023 they have had to disconnect their fridge or freezer for the first time in a bid to save money.

In addition, figures from JRF also found that in October last year a quarter (2.8m) of UK low-income households ran up debt to pay for food, a third sold belongings to raise cash, and one in six had used community ‘warm rooms’ – heated community areas that began popping up all over the UK last April.

Against this backdrop, Daniel Austin, CEO, and co-founder at ASK Partners, has explained that the Bank of England’s decision might be for the best.

Daniel said: ‘A hold on interest rate rises was expected now that inflation has started to fall. Although there was an effect on the affordability of debt, yesterday’s slight uptick in house prices is a positive indication that prices may have reached their lowest point.

‘This will bring investment capital back into the real estate market from buyers who have been waiting to make opportunistic, distressed purchases.

‘Those with finance in place are well poised to capitalise on the situation but the market in general will benefit from increased activity bringing back buyer confidence. As a lender to property developers and investors, we have seen first-hand the impact that rate hikes have had on borrowers and the market; stabilisation will be welcome news.’

Images: iStock and Etienne Martin