The Bank of England is poised to keep interest rates steady at 5%, signalling a cautious approach towards monetary policy adjustments.
Governor Andrew Bailey has emphasised the importance of not reducing rates too rapidly or excessively, highlighting the need for a balanced strategy. Economists anticipate that the Monetary Policy Committee (MPC) will maintain the current rate during the upcoming meeting on Thursday. This decision would sustain the Bank’s base rate at its highest level since the 2008 financial crisis.
The central bank’s recent rate cut from 5.25% to 5% in August marked the first reduction since 2020, providing some respite for borrowers across the nation. Bailey attributed this move to easing inflationary pressures, reiterating the necessity of measured rate adjustments. He stated, “We need to be careful not to cut interest rates too quickly or by too much.”
Chief economic adviser at the EY Item Club, Matt Swannell, articulated that the MPC had delivered a clear message against consecutive rate cuts unless economic data showed significant deterioration. The Consumer Prices Index (CPI) inflation, remaining at 2.2% in August, is deemed insufficient to prompt further immediate rate reductions. Sanjay Raja, chief UK economist for Deutsche Bank, concurred, noting, “The inflation figures won’t be enough to trigger a surprise rate cut on Thursday.”
Raja further indicated that the MPC might consider this a positive indication of diminishing underlying price pressures, potentially justifying a policy adjustment in November. This period coincides with the next forecast update and the fiscal outlook review set for the autumn Budget on October 30. Rob Wood, chief UK economist for Pantheon Macroeconomics, pointed out that another month of decelerating prices in the services sector could further reassure rate-setters.
Additionally, the Bank of England may observe the European Central Bank’s (ECB) recent actions, which saw a second consecutive interest rate cut in the Eurozone, lowering the main deposit rate from 3.75% to 3.5%. Comparatively, the US Federal Reserve is also anticipated to enact its first rate reduction on Wednesday evening.
In conclusion, the Bank of England is likely to maintain interest rates at 5%, reflecting a meticulously balanced approach to monetary policy amidst evolving economic indicators.