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The Bank of England (BoE) has voted to hold interest rates steady at 4% amid concerns around the recent rise in inflation.
At a meeting this week, the Monetary Policy Committee (MPC) voted by a majority of 7–2 to maintain the rate, as two members voted to reduce it by 0.25 percentage points, to 3.75%.
In addition, the committee voted by a majority of 7–2 to reduce the stock of UK government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, by £70bn over the next 12 months, to a total of £488bn.
It comes as CPI inflation rose to 3.8% in August, and was expected to increase slightly in September, before falling towards the 2% target thereafter. The committee said it “remained alert” to the risk that this temporary increase in inflation could put additional upward pressure on the wage and price-setting process, including in salient items such as food prices.
Some indicators of inflation expectations had also continued to increase over recent months, and the MPC was focused on the extent to which this could lead to renewed second-round effects. In general, upside risks around medium-term inflationary pressures remained prominent in the committee’s assessment.
In its latest update, the BoE said: “A gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate. The restrictiveness of monetary policy has fallen as the bank rate has been reduced.
“The timing and pace of future reductions in the restrictiveness of policy will depend on the extent to which underlying disinflationary pressures continue to ease. Monetary policy is not on a pre-set path, and the committee will remain responsive to the accumulation of evidence.”
