The Bank of England has reduced the interest rate for the fifth time in one year to 4%, but warned that climbing food prices will increase in inflation in 2025.
In a close decision which saw the members of the rate adjustment committee voting twice to break a dead end, the bank reduced the rate at the lowest level in more than two and a half years. Households of a variable mortgage of around £ 140,000 will save around £ 30 per month.
Andrew Bailey, governor of the Bank of England, said: “We have reduced interest rates today, but it was a finely balanced decision.
Money Dernited: What interest rates reduces means for savers and borrowers
The Monetary Policy Committee (MPC), the panel of nine members who establishes the basic interest rate, voted in favor of reducing loan costs by 0.25 percentage points.
However, the prices failed to make a unanimous decision, four members of the committee voting to keep it waiting and four others voted for a drop of 0.25 percentage of points.
Alan Taylor, an external member of the committee, initially called for a larger 0.5 percentage point, but after a second vote, he reduced this to 0.25% to break the dead end. If they had not made a decision, Mr. Bailey, the governor, would have had the decisive vote.
This is the first time that the Committee has gone to a second vote and highlights the difficulties that political decision -makers have faced to sail in the current economic climate, in which economic growth stagnates, with at least one rate fearing a recession, but inflation remains persistent.
Although the central bank voted to reduce loan costs, it has also increased its inflation forecasts on the back of higher food prices.
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“We have to get the balance on taxes”
The bank predicted that the rate of inflation of securities would reach 4% in September, against a previous estimate of 3.75%.
The September inflation rate is used to raise a series of advantages, including pensions.
The increase was motivated by food, where the inflation rate could reach 5.5% this year. About one tenth of household expenditure is devoted to food purchases, which means that it can have a disproportionate impact on inflation.
The bank said it could create “second round effects”, by which a higher feeling of inflation requires people to put pressure for remuneration increases, which could push even higher inflation.
Bank economists have accused bad harvests, weather conditions and changes in packaging regulations, but also, in the event of chancellor, higher labor costs.
He stressed that a higher proportion of workers in the food sales sector receives national salary, which Rachel Reeves increased by 6.7% in April.
Bank economists have also blamed higher employment taxes announced in the fall budget. “In addition, the overall costs of the supermarket labor is likely to have been disproportionately affected by the lower threshold to which employers are starting to pay the NICS … These significant increases in labor costs are likely to have increased food prices.”
There is also evidence that national employers’ insurance increases oblige companies to reduce hiring, the bank said. It occurs that unemployment in the United Kingdom has increased unexpectedly to a new summit of 4.7% of four years in May. Distinct data show that the number of payroll employees has contracted for the fifth consecutive month,
The bank said that the unemployment rate could reach 5% next year and warned of “moderate” economic growth, with a member – Alan Taylor – warning of an “increased risk of recession” in the years to come.