DWS: Bank of England too cautious for an interest rate hike
DWS: Bank of England too cautious for an interest rate hike
The Bank of England's (BoE) decision not to raise the key interest rate again was very close: Five members of the committee voted to keep the key interest rate at 5.25%. The other four members were in favor of a further rate hike of 25 basis points.
The vote reflects sharply divergent views on economic and price dynamics in the United Kingdom. Among the hawks outvoted today, concerns about second-round effects still predominate. With average weekly earnings growth at 8.5% year-on-year and inflation well above US or euro area levels, this does not seem entirely unjustified.
This time, however, the BoE emphasizes in its statement that other wage indicators are rising more moderately, so that official weekly earnings may overstate the momentum somewhat. In any case, the current level of key interest rates is already restrictive.
Last but not least, inflation eased more than expected in August. The majority of the Monetary Policy Committee has interpreted this as the beginning of a decreasing price trend.
From here, the BoE is now likely to wait and see attentively to see whether this assessment is correct. Its primary remit is and remains the fight against inflation. It underlines this with the formulation that monetary policy must now remain 'sufficiently restrictive for sufficiently long'.
If, contrary to expectations, price pressures intensify again in the coming months, the Bank will have to tighten again. But if wages and prices move in line with expectations, a plateau should now have been reached, which the British central bank now wants to let work through.