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UK borrowing costs unchanged despite inflation

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UK borrowing costs unchanged despite inflation

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Britain’s central bank has kept its key interest rate at a record low 0.5 percent this month as expected.

That was despite UK consumer price inflation hitting 3.3 percent in November with forecasts it will reach four percent soon from higher cost for food, fuel and sales tax.

The Bank of England has said it expects that by early next year inflation will have fallen back to its two percent target and it does not believe the temporary rise in inflation to have a lasting effect.

However, financial markets are now pricing in a strong chance of an interest rate hike as early as May, as they predict the Bank will be forced to take action to defend its credibility in the face of rising public inflation expectations.