UK interest rates live: Bank of England holds at 5% after shock US Fed cut
Monetary Policy Committee votes to keep rates on hold
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The Bank of England has voted against a further cut to interest rates, after the latest UK inflation figures remained stubbornly high.
The nine rate-setters on the Bank’s Monetary Policy Committee (MPC) voted 8-1 to keep the base rate unchanged at 5 per cent, a level which – prior to last year – had last been seen in 2008 during the global financial crisis.
The Bank cut rates from 5.25 per cent last month – the first reduction since 2020, in a move welcomed by squeezed borrowers still suffering from the cost-of-living crisis. The move disappointed savers, however.
August’s inflation was unchanged at 2.2 per cent, which was higher than the Bank of England’s 2 per cent target but was below the 2.4 per cent the Bank itself had predicted at this stage.
Keeping the base rate on hold means mortgage repayments are unlikely to change.
The decision comes a day after the US Federal Reserve voted for a shock 0.5 per cent cut to US interest rates, marking the first drop in four years.
US Fed improves rate forecasts
As well as cutting rates by a bumper 0.5 per cent to a range of 4.75-5 per cent, the US Federal Reserve also dramatically lowered its forecasts of where the rate will sit in the future.
As well as a further drop of 0.5 per cent anticipated this year, a majority the Fed’s rate-setters forecasee rates reaching 3.4 per cent next year, lower than the 4.1 per cent previously predicted. The rate is then expected to fall to 2.9 per cent in 2026.
However Fed chief Jerome Powell suggested that officials would be prudent in incrementally lowering rates, after the surprise half-point cut.
“I do not think that anyone should look at this and say, oh, this is the new pace,” Mr Powell said. “We’re recalibrating policy down over time to a more neutral level. And we’re moving at the pace that we think is appropriate, given developments in the economy.”
Value of sterling rises after inflation data published
The value of sterling rose on Wednesday as data showed that British inflation held steady in August but rose in the services sector – which is closely watched by the Bank of England – to 5.6 per cent from 5.2 in July.
Money markets priced in a 20 per cent chance of a 25 basis points rate cut from the Bank on Thursday, down from roughly 28 per cent right after the inflation data.
Economists forecast rate cut in November
The Bank of England will keep its main interest rate at 5 per cent, but reduce it in November despite inflation being expected to stay above the central bank’s 2 per cent target, a comfortable majority of economists predicted in a poll by Reuters.
Analysts noted that the Bank’s rate-setters would also have more information on the fiscal outlook by November, with chancellor Rachel Reeves’ Budget expected on 30 October.
Breaking: Bank of England votes to keep rates at 5%
The Bank of England has voted to hold interest rates at 5 per cent, in line with economists’ expectations.
Bank’s rate-setters vote 8-1 to hold at 5%
The rate-setting Monetary Policy Committee voted by a majority of eight members to one to hold interest rates at 5 per cent.
One member voted to reduce the base rate by 0.25 percentage points to 4.75 per cent.
‘Vital that inflation stays low,’ says Andrew Bailey
After the Bank of England voted to hold rates at 5 per cent, governor Andrew Bailey said: “Inflationary pressures have continued to ease since we cut interest rates in August.
“The economy has been evolving broadly as we expected. If that continues, we should be able to reduce rates gradually over time.
“But it’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much.”
Which MPC member voted to cut rates?
Eight of the nine Bank of England policymakers voted to keep interest rates unchanged on Thursday.
The eight policymakers who voted to keep the base rate unchanged were the Bank’s governor Andrew Bailey, Sarah Breeden, Megan Greene, Clare Lombardelli, Catherine Mann, Huw Pill, Dave Ramsden, and the committee’s new member Alan Taylor, of Columbia University.
Swati Dhingra, an associate professor at the London School of Economics, once again voted to reduce the base rate by 0.25 percentage points.
Pound strengthens after Bank holds rates
The pound strengthened after the Bank’s decision to hold rates, while the FTSE 100 Index pared back gains after surging ahead of the vote.
Sterling lifted 0.7 per cent to $1.33, and was 0.3 per cent higher at €1.19.
The FTSE 100 stood 0.9 per cent higher, up nearly 74 points at 8326.9, just after the decision, having at one stage risen 1.3 per cent higher in late morning trading.
CBI forecasts rate cut in November
Alpesh Paleja of the Confederation of British Industry said he expects an interest rate cut in November.
He said: “Monetary policy will be walking a fine line for a little while yet: between balancing upside risks to inflation, but not being too tight so as to choke off activity. Developments in fiscal policy in October’s Budget will also be a key consideration for growth prospects.
“We still anticipate another rate cut in November, and a few more next year, in line with the MPC (Monetary Policy Committee) moving at a slow but steady pace. On their own, lower interest rates will be a welcome respite to households and businesses.”
Pace of rate cuts ‘likely to be painfully cautious’ despite Bank’s ‘dovish’ tone
Suren Thiru, economics director at the Insitute of Chartered Accountants, warned that the Bank’s decision today “will be a notable setback to households contending with burdensome mortgage bills”.
Mr Thiru said: “While this decision doesn’t mean the end of the rate-cutting cycle, it does suggest that the pace of policy loosening is likely to be painfully cautious, with rate setters still concerned that underlying inflation remains too high.
“Although only one rate-setter voted to loosen policy, the relatively dovish tone of the minutes suggest that the Monetary Policy Committee is shifting towards cutting interest rates when it next meets in November.
“Continuing to keep interest rates elevated risks hampering the government’s ambition of significantly higher annual GDP growth by keeping borrowing costs too high for too long, limiting investment and growth opportunities for businesses.”
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