After Fed Holds Steady, the Bank of England Does the Same

Yesterday, the US Federal Reserve decided it was prudent to hold rates where they are for the time being, and today, the Bank of England decided to do the same.

The Bank of England’s Monetary Policy Committee (MPC) has a similar target with inflation as the Fed – 2%. While both the US and the UK are far away from returning to the target, the Committee felt it was prudent to keep the Bank Rate at 5.25%. At the same time three voting members preferred to increase the benchmark rate by 25 basis points.

Twelve-month CPI inflation declined to 6.7% during 2023 Q3. The rate is predicted to continue to fall sharply, to 4¾% in 2023 Q4, 4½% in 2024 Q1, and 3¾% in 2024 Q2.

The Bank noted that UK GDP is expected to have been flat in 2023 Q3, weaker than projected in the August Report with some business surveys pointing to a slight contraction of output in Q4. GDP is expected to grow by 0.1% in Q4, weaker than projected previously.

A slowing economy is expected to have tempered job growth, with some surveys indicating employment is slowing.

Commenting on the Bank’s decision, Douglas Grant, Group CEO of Manx Financial Group PLC (LSE: MFX.L), said the announcement brings hope to both businesses and consumers.

“Small and Medium-sized Enterprises (SMEs), which account for roughly half of all private sector turnover in the UK, require innovative strategies to secure their viability. SMEs should continuously assess and adapt their lending structures to stay resilient in the face of challenges. Recent research by Manx reveals a significant shift in the financial landscape for SMEs. In contrast to last year, when only a quarter of them faced obstacles, the current situation has led two in five SMEs to either pause or slow down certain operations due to difficulties in obtaining external financing. Moreover, the survey highlights that 15% of SMEs in need of external funding or capital couldn’t access the necessary funds, creating a significant hurdle for SME growth.

Grant said urgent action is needed to bridge the SME funding gap.

Andy Mielczarek, Founder and CEO of SmartSave, a Chetwood Financial company, said the decision to hold steady was due to the spectre of recession.

“There are reasons for optimism, such as falling shop price inflation, but the Bank of England can only hope that holding the rate steady will ward off further decline.  UK inflation remains the highest among the world’s rich economies, and while recent hikes may have curbed this regrettable trend, the impact on savers is considerable. Higher interest rates are intended to do more than combat inflation – they are supposed to protect Britons’ savings from losing too much of their real-term value. However, failure on the part of high-street banks to pass higher rates to consumers has left Britons worse off than they might have been.”

The MPC will meet next in December on the 14th.


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