Bank of England halts latest interest rate rises

Rates still at 15-year high of 5.25% as chancellor hails turning tide against inflation

A general view of the Bank of England in London
Bank of England held interest rates at 5.25% on Thursday. Photo: Anna Gordon/Reuters

The Bank of England left its key interest rate on hold on Thursday, ending a spate of hikes designed at bringing inflation back to its 2% target.

The current rate, 5.25% — which is a 15-year high — is the result of 14 consecutive rises.

Interest rates guide what banks charge customers to borrow money and have wrought havoc in the housing market this year as customers grapple with increased mortgage payments.

“We are starting to see the tide turn against high inflation, but we will continue to do what we can to help households struggling with mortgage payments," said Chancellor Jeremy Hunt.

“Now is the time to see the job through. We are on track to halve inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down.”

The pause by the BoE follows better than expected inflation data released on Wednesday, which showed price increases slowed to 6.7% in the year to August, down from July’s 6.8%, despite a rise in fuel prices. A decline in food prices led the pullback.

Economists had expected Consumer Price Index (CPI) inflation to rise to 7% but the price rises declined to their lowest level since February 2022.

The pound (GBPUSD=X) was trading around 0.4% lower against the dollar ahead of the news, declining to the $1.22 mark, its lowest point since March. After the news it was 0.7% lower than the previous session.

BoE governor Andrew Bailey had previously signalled the central bank was close to the top of its rate hiking cycle, spurring confidence in the market that the days of high rates were on their way out. Bets are still on that the bank rate could rise as high as 5.5%, which would be the highest level since the global financial crisis.

"Inflation has fallen a lot in recent months, and we think it will continue to do so. That’s welcome news," said Bailey. "But there is no room for complacency. We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that.”

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Moves by the BoE echo those of the Federal Reserve in the US on Wednesday. The Fed kept its interest rates on hold, following signs of easing inflation.

The move came with a warning, though, as comments implied further action may be needed down the line and it could be well into 2024 before rates come down again.

Watch: How does inflation affect interest rates?