The Bank of England has decided to keep its main interest rate at a record low of 0.25 percent as the economy weakens ahead of Britain’s departure from the European Union. But the decision was split, with three of the bank’s eight policymakers surprisingly voting for a rate increase. With growth slowing, inflation eating into households’ finances and the Brexit talks due to start within days, the bank policymakers opted for caution at their policy meeting Thursday.
But the bank is in a bind as its main goal is to control inflation, which at 2.9 percent annually is well above the official target of 2 percent. To bring down inflation it would have to raise rates, which would hurt the economy by making loans more expensive. The central bank has so far been willing to tolerate some higher inflation and delay any interest rate increase, especially since Brexit talks could increase uncertainty.
But the recent rise in inflation seems to be testing those limits. Minutes to the policy meeting show that three members of the Bank of England’s rate-setting committee wanted to raise the benchmark rate by a quarter point.
The British pound, which has been volatile in recent months amid the uncertainty over Brexit, jumped in value on the news of the split decision. Higher rates tend to push up a currency’s value, and the minutes suggest the Bank of England is a lot closer to raising rates than many investors had expected.
The pound rose almost a cent, from $1.2695 to $1.2781 after the bank’s statement.