Bank of England keeps base rate unchanged for first time in almost two years

The Bank of England’s Monetary Policy Committee (MPC) voted to keep the base rate at 5.25% today. This is the first time in almost two years the MPC have opted to keep borrowing costs unchanged.

The move comes a day after the Office for National Statistics (ONS) recorded August’s inflation figures at 6.7%, a fall from the 6.8% recorded in the 12 months to July.

In the same release it also said core inflation – which strips out energy and food prices due to volatility – fell from 6.9% in July to 6.2% in August.

This is often used by policymakers, like the MPC, to gauge the underlying price pressures in the economy.

In today’s meeting, the MPC voted by a majority of five to four to keep the base rate unchanged. Four members preferred to raise interest rates to 5.50%.

Meanwhile, in the US the Federal Reserve voted to keep its interest rates unchanged at 5.25% to 5.5% - a 22 year high. It comes at a time when the Labor Department recorded inflation at 3.7% over the 12 months to August, up from 3.2% in the same period to July.

“We are prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective,” said Jerome Powell, Chair of the Federal Reserve.

Last week, the European Central Bank (ECB) announced that it would increase its interest rates by 25 basis points to an all time high now standing at 4.50%, 4.75% and 4.00% respectively.

At the time of the ECB’s decision, inflation stood at 5.3% in the year to July. It has since fallen slightly to 5.2% in the same period to August.

“We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner,” said Christine Lagarde, President of the ECB.

She also said that the Eurozone’s current interest rates will make “a substantial contribution” in bringing inflation to its target.