Bank of England gets the balance right
“The Bank of England’s decision to keep its key interest rate on hold was less of a surprise after yesterday’s better inflation data, but still a welcome one.
“This was a close call, reflected both in the tight 5-4 vote and in the accompanying statement. The door has been left open for further hikes ‘if there were evidence of more persistent inflationary pressures’.
“The deceleration in money and credit growth and other signs of weakening demand probably mean that interest rates are now on hold, but this cannot be taken for granted. With inflation still well above target and after such a long period when monetary policy has been far too loose, the Bank is unlikely to be in any hurry to cut interest rates again either.
“What’s more, monetary policy is not just about official interest rates. The Bank will continue its policy of ‘quantitative tightening’ (QT), reducing its holdings of government bonds by another £100 billion over the next 12 months. This will maintain some of the upward pressure on long-term borrowing costs.
“Overall, though, the Bank has got this one about right. Arguably it should have paused several months ago to assess the impact of the tight squeeze that it is already in place. But it does look like interest rates have now peaked at a much lower level than many had feared.”
Notes to Editors
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