Interest rates won't fall until 2025, hints Bank of England

Interest rates won’t fall until 2025, hints the Bank of England.

Inflation in the UK remains all-time high, and the BoE will be forced to increase the rate of interest at record levels until 2025.

Chief economist Huw Pill cautions that even if demand slows down, inflation will not necessarily fall.

“The overall judgements of the MPC [monetary policy committee] has a little bit switched from being associated with demand factors to be more associated with supply factors.”

“We can be less sanguine about the idea that the slowing of demand, the slowing of activity that we are seeing will lead to inflation returning to target.”

He spoke at a web event the day after the Bank of England maintained its benchmark interest rate at 5.25%, the highest level since the financial crisis of 2008.

He said this in a speech at a web event a day after the Bank of England held its benchmark interest rate at 5.25%, the highest since the 2008 financial crisis.

Bank of England governor Andrew Bailey stated that it was “much too early to be thinking about rate cuts” while explaining the MPC’s decision to hold interest rates for a second consecutive

“We will keep interest rates high enough for long enough to make sure we get inflation all the way back to the 2% target,” Bailey stated.

“We’ll be watching closely to see if further rate increases are needed,” he further added.

Adopting an aggressive approach, Chief Economist Pill stated, “We haven’t really yet entertained consideration of cutting rates. At this moment, our concern is ensuring we do enough in order to bring inflation on a lasting and sustainable basis back to target.”

In the year to September, the rate of inflation stood at 6.7%.

The BoE has cautioned that factors such as strong income growth, stubborn service inflation, and the latest Israel-Hamas war can further add to inflation.

Pill further cautioned that the BoE can’t lose its focus on inflation due to the strong labor market and increasing rate of income.

“The overall position of the labor UK labour market, although loosening, still remains pretty tight by historical standards, and that is what underpins some of this potential persistence and strength in wage developments,” he further stated.

In its latest economic forecast, Threadneedle Street wrote that the UK’s economy won’t face a recession in 2024, as the BoE anticipates zero growth next year.

However, the BoE expects inflation to return to its 2% target at the end of 2025 or six months later, as anticipated, even as the economy slows down.

“Let me be clear: there is absolutely no room for complacency. Inflation is still too high,” Bailey stated.

- Published By Team Timeswire

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