The MPC said there were ‘additional uncertainties’ caused by the Budget and further global political tensions.
The Bank of England (BoE) has held the base rate at 4.75% in a widely expected move, with the Monetary Policy Committee (MPC) voting in a 6-3 majority.
The decision to hold rates comes after twelve month CPI inflation increased to 2.6% in November, creating a tougher environment for the central bank to cut rates.
‘Monetary policy has been guided by the need to squeeze remaining inflationary pressures out of the economy to achieve the 2% target both in a timely manner and on a lasting basis,’ the BoE said in a statement.
It added that the Autumn Budget, geopolitical tensions, and trade policy uncertainty had ‘generated additional uncertainties around the economic outlook’.
Budget policies such as an increase in national insurance for employers and a higher minimum wage have been seen as inflationary in some quarters.
The BoE noted it was too early to draw firm conclusions about the impact of the Budget, but also said there was evidence that some companies would raise prices in response to the changes, as well as laying off workers or accepting lower profit margins.
Rachel Winter, partner at Killik & Co, said the MPC’s decision to freeze rates would be disappointing for many people.
‘The Autumn Budget has proved inflationary, and this means that interest rates will likely need to remain at higher levels to keep this inflation in check,’ she said.
The three MPC members voting against the decision opted to reduce the bank rate by 0.25 percentage points to 4.5%.
John Schaffer (CityWire)