Response To Latest Bank Of England Interest Rate Decision

Anna Leach, CBI Deputy Chief Economist, said

"The decision by the Bank of England to hold interest rates at 5.25% will come as a relief to households holding back on spending and businesses that have pressed pause on investment. While inflation is following a downward trend towards the 2% target, it’s not clear whether rates will follow suit. Relatively high wage inflation alongside an uptick in services inflation in December means that a rate cut before the summer is increasingly unlikely to materialise.

"However, that won’t stop pressure piling onto the Bank of England to reduce rates as weakness in the economy persists. A rebound in growth in November following the previous month’s decline is encouraging but masks the overall picture of a flatlining economy, still at risk of technical recession.The stakes are high for business bearing the brunt of higher borrowing costs and soft demand. They desperately need certainty on monetary policy alongside a package of measures from government to kickstart productivity and growth.

"The Spring Budget in a General Election year is the perfect opportunity for politicians to support credible solutions. The CBI’s Budget recommendations have the potential to unlock business investment, including a Net Zero Carbon Plan, a globally competitive R&D Tax Credits scheme as well as capping the increase in the business rate multiplier in England for another year."

Nicholas Hyett, Investment Manager at Wealth Club, commented:

“Before Christmas investors had built up a picture of central bankers as trigger happy rate cutters, just waiting for the first excuse to get rates falling once again. Stock markets shot up as a result, and mortgage rates have started to fall.

Well, there’s little evidence central bankers are rate cut hungry in today’s MPC report. Rates were unchanged as expected, but two MPC members voted to increase rates – arguing that monetary policy need to be restrictive for longer to get core inflation back under control.

There’s a certain logic to that. The economy isn’t glowing. But it’s not screaming in distress either. Growth is ping-ponging around zero, and wage growth is slowing but still moving upwards and rising energy prices could yet move inflation higher again later in the year. But monetary policy is a supertanker not a speedboat – leave a change of direction too late and the economy will hit the rocks before central bankers can get it to slow.”

Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, said:

“The Bank of England’s Monetary Policy Committee may have left interest rates on hold this week, but this is still a turning point.

“Indeed, one member of the MPC voted for a cut. Swati Dhingra’s points about the lags in monetary policy - and the risks that monetary policy is left too tight for too long – echo warnings from the Shadow Monetary Policy Committee that meets at the IEA.

“The Bank has at least acknowledged that inflation is on track for the two per cent target in the spring and that the risks thereafter are more balanced, so it is even less likely that rates will be raised again.

“But the consensus on the MPC is still that policy will have to remain 'restrictive' for a while yet, so the first cut will probably not come until May, alongside the next set of Bank forecasts.

“Hopefully, this will be a case of better late than never.”