The UK economy is on the brink of stagnation as the Bank of England keeps interest rates unchanged, despite warnings of a stagnation risk.
Bank of England Keeps Interest Rates Unchanged Amid Stagnation Risk
The Bank of England has decided to keep interest rates at 4.75% despite warnings of a stagnation risk in the UK economy. The central bank’s rate-setting monetary policy committee (MPC) voted by a majority of six to three to leave interest rates unchanged, prolonging the pressure on households and businesses from elevated borrowing costs.
UK Economy on Brink of Stagnation
The Bank of England has downgraded its growth forecast for the UK economy, predicting zero growth in the final three months of the year. This is a sharp downgrade from its previous forecast of 0.3% growth as recently as November. The central bank cited concerns over stubborn inflation and the threat of Donald Trump reigniting global trade wars.
Inflation Fears Trump Growth Concerns
The MPC’s decision to keep interest rates unchanged reflects heightened concerns over stubborn inflation. The committee noted that inflation risks remain, despite a faltering growth outlook. Some economists suggested that the six-three split was a sign that the Bank is preparing to lower borrowing costs at its next policy meeting in February.
Cautionary Approach
The Bank of England’s governor, Andrew Bailey, signaled that Threadneedle Street remains ready to cut interest rates in future but sounded a note of caution. “We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year,” he said.
Business Leaders Warn of Job Cuts and Price Hikes
Business leaders have warned that the £40bn tax-raising budget announced by Chancellor Rachel Reeves could force them to cut jobs or pass on the costs to consumers by raising their prices. A closely watched business survey this week showed employment levels falling at the fastest pace in four years.
Inflationary Pressure Remains
Signs of lingering inflationary pressure have rattled policymakers in the US and UK in recent weeks. The US Federal Reserve cut interest rates on Wednesday, but suggested it would make fewer rate cuts than expected in 2025. Financial markets were betting on a 45% probability of a quarter-point rate cut at the next MPC meeting after Thursday’s announcement.
