Bank of England Governor Andrew Bailey announced that the central bank has held interest rates at 3.75%, noting that the pass-through of higher global energy costs into broader price and wage settings in the UK has been "subdued" to date. This decision came despite the UK's inflation rate standing at 3.1%, significantly above the Bank's 2% target, and contrasting with other major central banks like the US Federal Reserve and the European Central Bank, which have recently raised rates.
Bailey explicitly warned that if the volatility in global energy prices persists, it could lead to a more substantial impact on inflation, increasing the likelihood that the Bank of England would need to raise the Bank Rate. The Monetary Policy Committee (MPC) voted 6-3 to maintain the current interest rate, with three members advocating for an increase to 4%. This split aligns with the MPC's voting pattern from its July meeting.
In an unexpected move, the Bank of England also paused all active sales of its government debt, known as gilts, for the next six months. This decision, which requires approval from Chancellor John Healey, includes keeping $222 billion of long-term debt until maturity, retaining $120 billion permanently to back banknote issuance, and selling remaining government debt directly back to the government rather than through market auctions. These actions aim to potentially save money in the short term for public finances and reflect a long-term plan to wind down the substantial stock of debt accumulated during financial crises and the pandemic.
