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The Bank of England (BoE) has decided to maintain its key interest rate at 5.25%, putting an end to a series of 14 consecutive rate hikes aimed at reining in inflation to the 2% target.

The current rate marks a 15-year high and has had a significant impact on the housing market, causing difficulties for homeowners dealing with rising mortgage costs.

Chancellor Jeremy Hunt commented on the situation, saying, “We are starting to see the tide turn against high inflation, but we will continue to do what we can to help households struggling with mortgage payments.”

He emphasised the government’s commitment to reducing inflation, adding, “Now is the time to see the job through. We are on track to halve inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down.”

This decision by the BoE comes on the heels of encouraging inflation data released just a day earlier.

Contrary to expectations of a rise to 7%, the Consumer Price Index (CPI) inflation decreased to 6.7% in the year to August, down marginally from 6.8% in July. This decline was primarily driven by falling food prices, even as fuel prices increased. The data marked the lowest level of price rises since February 2022.

In the currency markets, the British pound experienced a decline ahead of the announcement, trading around 0.4% lower against the dollar and reaching its lowest point since March at the $1.22 mark. Following the news, the pound was down by 0.7% compared to the previous trading session.

Andrew Bailey, the BoE Governor, had earlier indicated that the central bank was nearing the peak of its rate-hiking cycle. This had instilled some confidence in the market, leading to speculation that interest rates might not climb much further.

Bailey noted, “Inflation has fallen a lot in recent months, and we think it will continue to do so. That’s welcome news. But there is no room for complacency. We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that.”

The BoE’s actions mirror those of the U.S. Federal Reserve, which also chose to keep its interest rates steady following signs of easing inflation.

However, both institutions issued cautionary notes, suggesting that further adjustments might be necessary in the future.

In fact, some forecasts indicate that it could be as late as 2024 before we see a significant reduction in interest rates.

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