Bank of England maintains interest rates after UK inflation slows

The Bank of England kept interest rates at the highest level in 16 years, even as inflation in Britain fell to its slowest pace in more than two years.

Central bank policymakers left their key rate at 5.25 percent for the fifth consecutive meeting on Thursday, a day after data showed Britain's inflation rate falling to 3.4 percent . The decision to hold rates was widely expected, but analysts were tracking the votes of the nine-person rate-setting committee to see if a consensus was emerging on whether and when price increases were under control. rate cuts could begin.

Eight committee members voted to keep the rates in place, with the two policymakers who voted in favor of higher rates last month renouncing their position. One member voted in favor of a rate reduction.

Policymakers held rates “because we need to be confident that inflation will return to our 2% target and stay there,” Andrew Bailey, the central bank's governor, said in a statement. “We're not at the point yet where we can lower interest rates, but things are moving in the right direction.”

The debate over the timing of rate cuts concerns decision-makers at several major central banks. On Wednesday, officials at the US Federal Reserve kept rates stable but said they plan to make several rate cuts this year. The same day, Christine Lagarde, president of the European Central Bank, said that by June, euro zone policymakers would have more data, particularly on wages, to give them confidence that inflation was under control, fueling speculation that rate cuts could begin later this month. summer.

Earlier Thursday, the Swiss National Bank unexpectedly cut interest rates, the first to do so among central banks in advanced economies. Inflation has been much lower in Switzerland than anywhere else in Europe, and the strength of the Swiss franc was also a factor in the decision to cut rates, officials said. A strong currency can slow down the economy by making exports more expensive: after the rate change, the franc fell against the euro and the dollar.

Bank of England policymakers have provided the clearest signal yet that rate cuts are on the way. According to minutes of this week's meeting, officials said the policy was expected to be “restrictive for an extended period of time,” but, they added, the policy could remain restrictive even after interest rates were cut. .

In response, traders increased their bets on rate cuts as early as June.

For much of last year, inflation in Britain remained stubbornly high. Prices have risen faster than in other European countries and tight labor markets have pushed up wages. These concerns have recently begun to ease.

Economists expect a marked slowdown in inflation in the coming months, possibly falling below the central bank's 2% target, as household energy bills fall. Core inflation, which excludes food and energy prices, which tend to be more volatile and influenced by international prices, fell to 4.5 percent last month, its highest level low for over a year. At the same time, the weak economy has pushed the central bank to cut rates. Britain ended last year in recession.

Policymakers have warned that the impact of falling energy prices will eventually fade and that the inflation rate could start to rise again. Policymakers want to be sure that inflation, rather than reaching just 2%, can return to that level over a long period before cutting interest rates.

They are closely monitoring wage data to see if rising wages do not lead to long-term inflationary pressures. Annual wage growth, excluding bonuses, rose 6.1 percent in the three months to January, according to the latest data.

Bank of England officials have been divided for some time on how to tackle high inflation. Swati Dhingra, who again voted in favor of a rate cut, argued that the weak UK economy meant inflation would fall and the latest rate rises could have been excessive and should be reversed with more strength.

Last month, Jonathan Haskel and Catherine L. Mann voted to raise rates, highlighting tight labor markets and the risk of deep-seated inflationary pressures. But both abandoned that position this month and joined the majority in favor of holding rates.

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