Sept. 21 (UPI) -- The Bank of England paused a 20-month-long interest rate tightening cycle Thursday, a day after the Office for National Statistics reported inflation fell for the third straight month in August.
The central bank's Monetary Policy Committee narrowly voted to keep the key Bank Rate unchanged at 5.25% with four of the panel's nine members arguing for a 0.25% hike to 5.5%, BoE said in a news release.
However, the majority view was that with key signals on the persistence of inflation mixed, average weekly earnings growth not carrying over in other measures of wages and downside news on services inflation, the current policy stance was sufficiently "restrictive."
"Inflation has fallen a lot in recent months, and we think it will continue to do so," said BoE Gov. Andrew Bailey, who used his casting vote to keep rates on hold after a run of 14 consecutive hikes since December 2021.
Headline Consumer Price Inflation fell unexpectedly in August to 6.7% and key core inflation, which strips out prices of volatile items such as energy, food, alcohol and tobacco, fell by 0.7% to 6.2%. CPI is down 2% from May and 4.4% from its peak in October.
Bailey also said there were "increasing signs" that higher interest rates were beginning to impact economic growth.
The economy contracted by 0.5% in July amid a twin squeeze on consumers from high inflation, particularly in food and fuel, and the interest rates to combat it feeding through to increased mortgage payments for homeowners and on loans.
However, Bailey signaled that rates may need to be held at higher-than-normal levels for some time in order to bring inflation down to the bank's 2% target and keep it there.
Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee's remit. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.
"We need to be sure inflation returns to normal and we continue to take the decisions necessary to do just that," he added.
Chancellor Jeremy Hunt welcomed the bank's decision as evidence of progress in the battle against inflation.
"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."