Interest rate held at 4%

Sara White, Editor, Business & Accountancy Daily Croner-i

The Bank of England has left the base rate unchanged at 4% with majority of members voting in favour of the hold.

This decision was widely expected and reflects ongoing concerns about risks of higher inflation, currently running at 3.8% for the second month running.

At today’s meeting the Monetary Policy Committee (MPC) voted by a majority of 7–2 to maintain bank rate at 4%. Two members voted for a 0.25% cut to 3.75%. 

The Committee warned it was ‘alert to the risk that this temporary increase in inflation could put additional upward pressure on the wage and price-setting process’, but expects inflation to drop to the 2% target in the ‘medium term’.

The last base rate cut was in July, and with one further meeting before the critical autumn Budget, the 6 November decision will be watched closely.  

But some experts are warning that the Bank’s hands are tied over the next few months with the critical Budget and a backdrop of poor economic growth.

Isaac Stell, investment manager at Wealth Club said: ‘With inflation still hovering at nearly twice the Bank’s target, the case for further easing is growing harder to make.

‘The BoE currently faces a dilemma, easing rates risks further fuelling inflation, but high rates strain an already weak economy. Add into the mix a government that is due to deliver a Budget that needs to plug a black hole running into the tens of billions and the quandary becomes ever more complex.

‘For now, the real action may lie not with the Bank, but with Westminster. The BoE remains sat on the sidelines, waiting to see what tax and spending decisions emerge in the budget. Moves prior to this could backfire and the Bank likely wants to see to see whether the government manages to navigate the budgetary gauntlet before making its next play.’

Rates are at least down on previous highs, but for companies and the accountancy profession, significant concerns about significant rises in employment taxes and high business costs are the major concerns affecting day to day operations and denting confidence.

Mike Randall, CEO at Simply Asset Finance: ‘Flat rates will be welcomed for now, but rising employer costs and uncertainty around November’s Budget could create a challenging backdrop for SMEs. If unaddressed, these factors risk holding back confidence if businesses are left guessing about the direction of travel.

‘What business leaders need now is clarity and stability from policymakers, so that short-term resilience can be translated into sustained growth and investment for the future.’

Glenn Collins, head of technical at ACCA UK, added: ‘The most important thing ACCA wants to see is a landscape that is easy to do business in.

‘We want businesses to be supported, not waylaid with high costs and burdens. Our members want to see a thriving economy that encourages investment and growth. The Bank’s decision to hold the interest rate may well create stability in the UK, but whether it generates confidence amongst the UK PLC remains to be seen.’