The Bank of England has left interest rates unchanged at 4% in a disappointment for home owners and businesses.
The Bank’s Monetary Policy Committee (MPC) said the rate of inflation is still too high to justify a further reduction in the cost of borrowing. It voted by 7 to 2 to hold the benchmark rate.
The decision was widely expected but will nevertheless come as a blow for the housing market and small businesses buckling under a burden of heavy debt.
It follows a quarter point cut in US interest rates to 4% to 4.25% yesterday from the Federal Reserve. Eurozone interest rates set by the European Central Bank stand at between 2% and 2.4%.
The Bank has cut rates in the UK five times since August last year, each time by a quarter point, but “sticky” inflation has stayed higher for longer than hoped for.
The MPC reduced the rate to its lowest level for more than two years at its last meeting in August.
But official figures this week showed headline inflation unchanged at 3.8% last month, almost double the Bank’s target of 2%. It was fuelled by a fifth consecutive monthly rise in the pace of food inflation, which went up from 4.9% to 5.1%.
Inflation is expected to rise again to 4% in September, making City commentators increasingly gloomy about the prospects of a further interest rate cut this year.
Jeff Brummette, chief investment officer at investment manager Oakglen Wealth said: “It’s unlikely we’ll see further rate cuts before December but never rule it out – a decision in November’s MPC meeting could still hinge on surprise inflation or labour market data.”
Victoria Scholar, head of investment, at Interactive investor said: “Elevated inflation makes it harder for the central bank to continue on its monetary loosening path, raising the likelihood of a higher-for-longer interest rate environment which could have negative effects on borrowing and the housing market.
Sandra Horsfield , economist at investment bank Investec said: “We expect the MPC to sit out the November and December meetings too and only resume rate cuts early next year. Our forecast is for the Bank rate to be cut in three 25bp steps in 2026, which would give a year-end Bank rate level of 3.25%.
