UK borrowing costs have dropped to 4% following a fifth interest rate cut by the Bank of England. But the celebration may be short-lived as inflationary fears, especially from food, grow stronger.
The MPC’s 5-4 split decision signals an institution grappling with difficult trade-offs. Growth remains sluggish, but inflation—especially in essentials—is no longer fading as expected.
The Bank’s governor noted that the path of easing remains open but increasingly uncertain. With inflation rising to 3.6% in June, and food prices rising further, rate cuts may slow.
Environmental disruptions and domestic policy changes are squeezing retailers, who are now increasing prices. Shoppers may face a 5.5% rise in food costs by the end of the year.
Though ministers say their economic plan is working, independent analysts believe it’s contributing to the inflation problem—something interest rate cuts alone may not solve.