Interest rates should be held again in August, says rate-setter


Interest rates should be held again next month rather than be cut for the first time in more than four years, a Bank of England rate-setter has said.

Jonathan Haskel, a member of the Bank’s Monetary Policy Committee (MPC) which sets the UK’s main interest rate, said he “would rather hold rates” at 5.25% until there is more certainty that inflation pressures had “subsided sustainably”.

Interest rates have been kept at a 16-year high in an attempt to slow consumer prices rising, but higher rates have pushed up the cost of borrowing, including for mortgages.

The Bank previously appeared to hint that rates could be cut in August after official figures showed inflation – which measures the pace of price rises – had slowed to 2%, which is in line with its target.

Financial markets have currently priced in a roughly 60% chance that rates will be cut next month for the first time since 2020.

But Mr Haskel, who voted in favour of holding rates in June, said he believed his fellow policymakers should remain cautious, citing concerns over the UK’s job market and worker shortages.

He said while there were “considerable encouraging signs” on inflation falling, the rate would actually remain above 2% “for quite some time”.

“The labour market continues to be tight, and I worry it is still impaired,” he wrote in a speech due to be delivered later on Monday.

“I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.”

The Bank of England is independent of the government and its main role is to keep inflation stable at 2%.

In response to high inflation, the Bank in recent years has raised and then kept interest rates at a high level. The Bank has also forecast that inflation could tick up slightly again in the coming months.

The theory behind rising rates is that it will slow inflation, but it can also drag on economic growth as businesses may put off investment or hiring, which could mean fewer jobs being created.

The main UK interest rate informs the rates High Street banks offer on mortgage deals and savings accounts.

The average two-year fixed mortgage deal on Monday was 5.93%, while a five-year deal was 5.51%, according to financial information company Moneyfacts.

The average easy access savings rate was 3.11%.

Higher borrowing costs have added to financial pressures on household budgets in recent years, which have been stretched by higher energy and food bills.

The UK still has a lower percentage of people of working age in employment than before the Covid pandemic.

Inflation can be impacted by worker shortages, as it can lead to employers having to raise wages in order to attract and retain staff, which can in turn lead to prices for goods rising as businesses increase them to cover costs.

Mr Haskel is an external member of the Bank’s MPC and also a professor of economics at Imperial College Business School.

“The playing out of those shocks through the economy, and the continued tight and impaired labour market, means that inflation will remain above target for quite some time,” Mr Haskel wrote in his speech.

His term on the MPC is due to end on 31 August.

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