Bank of England pauses interest rate rises after inflation drops to 6.7%

THE Bank of England has held interest rates at 5.25% after inflation fell to 6.7% in August - dropping much more quickly than expected.

The Bank of England told the Chamber last week it expects inflation to fall to 5% by Christmas, but 2% remains its target and will be harder to achieve.

The news comes after 14 consecutive rises and it is understood the Governor used his casting vote in the Monetary Policy Committee meeting after several members wanted to raise rates to 5.5%, with Andrew Bailey, who spoke to a Chamber audience in Hull last year, warning that if prices start to increase again, so will rates.

This is the first time since November 2021 that the MPC has met and not raised the UK's interest rate.

Welcoming today’s interest rate decision, Chamber Chief Executive Dr Ian Kelly said: “Businesses will be giving a cautious welcome to today’s decision by the Bank of England to hold the base rate at 5.25%. Constant hikes in the cost-of-borrowing have had a hugely detrimental impact on the firms we represent.   

“Research published earlier this week by the BCC Insight’s Unit found that 46% of companies said the current interest rate is having a negative impact, while only 9% are seeing benefits. 

 “Companies need reassurance that decisions on interest rates are not knee-jerk reactions to the most recent inflation data.  

 “We need clear direction from decision makers, creating a roadmap for business that really boosts confidence and investment.”  

Vicky Pryce, senior member of the BCC’s Economic Advisory Group said: “With clear signs that inflation, including core inflation is slowing down, the decision to pause, and possibly bring to an end the current interest rate hike cycle, makes sense.   

“The sharp increase in the cost of borrowing over the past year and a half has already left many SMEs in real difficulty.  

“Research published earlier this week by the BCC Insight’s Unit showed that 46% of companies said that the current interest regime was having a negative impact on their business, particularly among the smaller and consumer facing businesses, such as hospitality and retail.”