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Bank of England on the horns of a dilemma, but makes right decision to hold rate

14 Sep 2017

Bank of England on Threadneedle StreetResponding to the Bank of England’s decision to hold interest rates at 0.25% this month, Tej Parikh, Senior Economist at the Institute of Directors, said:

“Maintaining the historically low base rate reflects the Bank of England’s willingness to overlook above-target inflation for the sake of the wider economy. As such, it’s a decision the business community very much welcomes.

“Amidst mixed economic signals, the Bank finds itself on the horns of a dilemma. Indeed, this month’s minutes did strike a more hawkish tone with the suggestion that the stimulus may be reduced sooner than expected.

“Inflation returned to its four-year high of 2.9% last month, meanwhile the continued strength in employment figures suggests there’s not much slack left in the labour market. That said, the inflationary pressure driven by weak sterling is expected to peak soon, pay growth remains subdued, and wider economic confidence remains fragile.

“With consumer pockets squeezed and businesses uncertain to wade into significant investment decisions, the Bank’s accommodative monetary stance – for the time being – provides crucial support for the economy.”

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