The Bank of England has held interest rates and signalled there are unlikely to be cuts anytime soon.
It is the third time in a row that the UK cost of borrowing remained unchanged at 5.25% – a 15-year high.
The Bank said interest rates would have to stay higher to slow the pace of price rises, or inflation.
That contrasts with the US Federal Reserve which, on Wednesday, suggested interest rates could fall significantly next year.
The Bank has lifted interest rates 14 times since December 2021 to cool soaring inflation, fuelled by higher energy and food prices.
While price rises have eased to 4.6%, that is still more than double the Bank of England’s 2% target.
“We’ve come a long way this year and successive rate increases have helped bring inflation down from over 10% in January to 4.6% in October,” said Bank of England governor Andrew Bailey.
“But there is still some way to go.”
In the minutes from the Bank’s rate-setting committee meeting, it said interest rates would need to remain higher “for sufficiently long” to return inflation to 2%.
One factor discussed by the Monetary Policy Committee (MPC) was that UK inflation remains worse than in the US and the eurozone.
While the main inflation rate has fallen everywhere, “core inflation [which strips out the most volatile goods] has fallen back by less in the UK” and “measures of wage inflation were also considerably higher in the UK than elsewhere”.
The nine-member MPC voted 6-3 to hold rates, and there was no change to the language in the minutes that rates would remain at these levels for an “extended period”.
It also signalled that interest rates could even rise “if there were evidence of more persistent inflationary pressures”.
Despite the Bank keeping rates at 5.25%, some mortgage lenders are making moves with their own rates as they are confident the next move will be down.
Virgin Money and HSBC are reducing rates on their new fixed-rate deals on Thursday. TSB will follow suit on Friday.
US signals rate cuts
Like Mr Bailey, Jerome Powell, chairman of the US Federal Reserve, also appeared cautious in his comments on the outlook for US interest rates after the central bank voted this week to keep them on hold.
He said: “It is far too early to declare victory. There is a lot of uncertainty and we’ve seen the economy move in surprising directions so we’re going to need to see further progress.”
But in the US, inflation has slowed more rapidly and separate forecasts by members of the Fed’s rate-setting panel showed they expected the key borrowing rate to fall from the current range of 5.25%-5.5% to 4.5%-4.75% next year.
Looking ahead, the Bank of England said that it expected no economic growth for the final three months of this year.
On Wednesday, new data showed that the economy – which is measured by gross domestic product (GDP) – shrank by 0.3% in October.
“Bank staff expect GDP growth to be broadly flat in the fourth quarter and over the coming quarters.”
