(VOR News) – The Bank of England will probably keep interest rates at the same level on Thursday after official data showed that inflation in the UK remained steady in August at an annual rate of 2.2%.
This occurs one day following the official release of the numbers. This is because the higher cost of flying was somewhat offset by decreased petrol prices as well as cheaper costs for lodging and dining.
Additionally, the Bank of England is expected to maintain interest rates.
The cost of borrowing money increased dramatically by central banks worldwide from near zero during the Coronavirus outbreak, as a result of rising supply chain concerns and Russia’s full-scale invasion of Ukraine, which increased Bank of England energy costs, when prices started to soar.
This action was taken in reaction to the notable rise in prices due to the rising cost of electricity. They have started lowering interest rates in response to this scenario, as inflation rates have started to decline from multi-decade highs.
The Office of National Statistics released its most recent figure on Wednesday, and it was in line with market expectations.
This leads one to conclude that, for the second consecutive month, the inflation rate has remained somewhat higher than the 2% target set by the British central bank. For the first time in more than three years, inflation inched closer to the target in June.
The central bank has been progressively lowering its main interest rate by a quarter point since the start of the outbreak, bringing it down to 5% below its starting point.
This was the first decline that has happened since the start of the pandemic. Even though the Bank of England vote was quite close, four out of the nine members decided against changing the original proposal.
The US Federal Reserve is expected to cut interest rates on Wednesday for the first time in the previous four years. Interest rates would be reduced for the first time with this.
The great majority of economists believe that the Bank of England’s monetary policy committee will be on holiday on Thursday. This is due to the fact that several committee members have continuously expressed their concerns about price increases in the vital services industry, which accounts for almost 80% of the UK economy.
The statistical data released on Wednesday indicates that the services sector experienced an increase in inflation in August, from 5.2% in July to 5.6% in August.
Bank of England increased this due to rising airfares across Europe.
Nonetheless, they believe that after the government’s budget was made public on October 30, the bank would probably reduce its deposits once more in November.
Claiming that it is imperative to close a projected 29 billion dollar deficit in the public budget—or 22 billion pounds less than the previous administration estimated—the incoming Labour government has taken office.
Additionally, they have said that they might have to increase taxes and cut spending, which would probably be bad news for the British economy’s short-term outlook and drive down inflation. It is anticipated that this event will have a detrimental effect on the British economy.
According to Suren Thiru, the director of economics at the Institute of Chartered Accountants in Bank of England and Wales, “an interest rate cut on Thursday is looking unlikely with the majority of the Monetary Policy Committee likely to want to assess the impact of next month’s budget before deciding when to loosen policy again.”
Suren Thiru is a member of the Institute of Chartered Accountants in Bank of England and Wales because he is the director of economics.
Suren Thiru made his statement in reaction to the decision that was made by the Monetary Policy Committee regarding when in the future to relax policy once more. On account of the fact that the majority of committee members arrived at this conclusion, this remark could be made public.
SOURCE: AP
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