LONDON (AP) — The Bank of England has confounded market expectations and held U.K. interest rates steady, saying it wanted to see more information about what happens to unemployment after the British government recently ended a program that subsidized worker pay during the coronavirus pandemic.
The decision Thursday to keep the bank's main interest rate at 0.1% was a surprise given the sharp pickup in inflation in recent months as a result of high energy costs, labor shortages and other factors as the global economy recovers from the pandemic.
Financial markets had been increasingly pricing a rate rise to 0.25% over recent days, prompting some mortgage lenders to withdraw some of their cheapest loans. The reaction to the decision in financial markets was instant, with the pound selling off sharply against other currencies. Against the dollar, it was down 1%, at $1.3550.
The central bank's decision kept it in line with other leading economies, with the European Central Bank and U.S. Federal Reserve recently leaving interest rates unchanged. The Fed, however, announced Wednesday that it would start winding down a stimulus program it put in place during the pandemic to keep a lid on inflation.
The vote by the Bank of England's rate-setting Monetary Policy Committee was 7-2 in favor of keeping the rate unchanged. The two members who voted for a hike said it was necessary because of strong domestic and global cost pressures, according to minutes accompanying the decision.
For the majority, there was “value” in waiting for further information in the labor market following the end of the government salary program “before deciding when a tightening in monetary policy might be warranted.”
For much of the time that the program was in place, the government paid 80% of the salaries of employees unable to work because of lockdown measures. At its peak, it helped support over 11 million people, but with many workers returning to their jobs after lockdown restrictions lifted, that fell to a little more than 1 million at the end of the program in September.
Though it opted against hiking rates, the panel made clear that it intends to lift borrowing costs in the coming months to ease inflation. It said the recent data cemented that point of view.
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This story has been corrected to show the Fed decision was Wednesday, not Tuesday.
Pan Pylas, The Associated Press
