The Bank of England has maintained its interest rates at 5.25% for the seventh consecutive time, describing the decision as “finely balanced.” This decision comes as inflation recently hit the Bank’s 2% target for the first time in three years.
Seven out of nine members of the Monetary Policy Committee (MPC) voted to keep the rates unchanged. Governor Andrew Bailey stated, “It’s good news that inflation has returned to our 2% target. We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now.” Deputy Governor Dave Ramsden and external MPC member Swati Dhingra favoured a 0.25% cut.
The decision met market expectations, especially after data indicated a drop in inflation to the Bank’s target. However, services inflation remains higher at 5.7%, indicating persistent underlying pressures.
The jewellery supply chain, which relies heavily on stable financial conditions for operations and investments, faces continued high borrowing costs due to the interest rate freeze. Manufacturers and wholesalers, particularly those requiring loans for operations or expansion, will need to manage these higher costs.
David Bharier, Head of Research at the British Chambers of Commerce, noted, “Rate cuts, when they come, will provide welcome breathing space for the companies we represent across the UK. Our research shows that while business concern about the cost of borrowing has been easing, it remains at historically high levels.” For jewellers, this means potential delays in expansion plans and increased costs passed down the supply chain.
Jewellery retailers, who often finance inventory through loans, will also feel the impact of sustained high interest rates. Higher borrowing costs can lead to increased prices for consumers or reduced profit margins for retailers.
According to the Resolution Foundation think tank, homeowners refinancing at higher rates could collectively face an additional £12 billion by year-end. This financial strain on consumers could lead to decreased disposable income, potentially affecting luxury purchases like jewellery.
The Bank’s minutes revealed that the economy grew faster than expected in the first quarter, partly due to increased government spending. Bank staff now predict a GDP growth of 0.5% in the second quarter of 2024, up from 0.2% forecasted in May. Despite these signs, concerns about wage growth and potential rises in energy prices in the autumn could push inflation higher again.
The minutes also indicated that the MPC remained focused on ensuring sustained low inflation. “It was very difficult to gauge the evolution of labour market activity,” the minutes stated, highlighting the uncertainty around economic data. For the jewellery industry, this means continued vigilance in managing costs and pricing strategies.
The decision comes two weeks before the UK’s July 4 election, with the economy being a key political issue. Prime Minister Rishi Sunak, who had hoped for a rate cut, expressed disappointment. However, the Bank maintained its independent stance.
The Bank of England’s decision aligns with the European Central Bank and the Bank of Canada, which have started lowering interest rates. In contrast, the US Federal Reserve has kept rates on hold, with projections suggesting only one cut this year.
