LONDON, Dec. 14 (Xinhua) -- The Bank of England (BoE) held its benchmark interest rate at a 15-year high of 5.25 percent on Thursday.
At its meeting ending on Wednesday, the BoE's Monetary Policy Committee voted by a majority of 6-3 to hold the rate. Three members preferred to increase it by 0.25 percentage point to 5.5 percent.
The central bank expects the United Kingdom's (UK) economic growth to be broadly flat in the fourth quarter of this year and over the coming quarters. "Employment growth is likely to have softened, and there has been further evidence of some loosening in the labor market," the bank said in a statement.
As energy costs eased, the UK's Consumer Price Index (CPI) fell from 6.7 percent in September to a two-year low of 4.6 percent in October.
Inflation is expected to remain near its current rate around the turn of the year, the BoE said. "In particular, services price inflation is projected to increase temporarily in January, related to base effects from unusually weak price movements at the start of this year, before starting to fall back gradually thereafter."
The bank's 2 percent inflation target continues to apply, reflecting the primacy of price stability in the UK monetary policy framework, the BoE said, noting that it "continues to judge that monetary policy is likely to need to be restrictive for an extended period of time."
Unlike its U.S. counterpart, the BoE stopped short of committing to a switch in stance towards rate cuts just yet, Lindsay James, investment strategist at Quilter Investors, said. The U.S. Federal Reserve on Wednesday signaled an end to its rate hiking cycle.
The British pound rose on Thursday afternoon, trading at over 1.27 U.S. dollars.
DELICATE BALANCE
"The timing of any (rate) cut will depend on treading the delicate balance between cooling inflation and supporting the economy, given that stagnation conditions have bedded in," Susannah Streeter, head of money and markets at Hargreaves Lansdown, said.
The UK economy has not performed well, piling pressure on the central bank. The country's gross domestic product (GDP) shrank by 0.3 percent in October, with contractions across all three main sectors, according to the latest official figures. In the three months to October, UK GDP showed no growth.
Some business surveys do not bode well. The S&P Global / CIPS UK Construction Purchasing Managers' Index registered 45.5 in November, down from 45.6 in October and below the 50.0 no-change value for the third month running.
"There is no doubt that 2023 has been a difficult year for the UK construction sector. Inflated borrowing costs and falling demand have conspired to further slow new building this month," John Glen, chief economist at the Chartered Institute of Procurement & Supply (CIPS), said.
Nearly half of firms say the cost of borrowing is negatively impacting their business, a survey by the British Chambers of Commerce (BCC) showed in September. "Firms tell us every day that they are struggling to pay off debts and finding it difficult to take out loans," BCC Director General Shevaun Haviland said.
And inflation is still high. "In fact, over the course of 2024, inflation may not fall as far, or as fast, as you may suspect -- because the Bank of England will need to contend with domestically-fuelled inflation, which is a tough nut to crack," Streeter said.
