The Bank of England stays on hold in September policy meeting

The Bank of England kept interest rates unchanged at 5.0%, with an almost unanimous 8-1 vote to hold rates in the September policy meeting, after the central bank delivered its first rate cut since 2020 last month. 

The UK policymakers also voted to run down its stock of British government bonds by another 100 billion pound over the coming 12 months. 

Today’s decision shows that BoE policymakers remain cautious, despite the US Federal Reserve’s higher than expected 50 basis points rate cut on Wednesday, with comments from BoE Governor Bailey that cooling inflation keeps the door open for gradual rate cuts in coming months. 

Economists expect the UK policymakers to proceed with policy easing in the coming months, but likely at a slower pace and to avoid the risk of too fast or too big cuts as inflation remains the major problem for the central bank. 

The BoE downgraded its inflation forecast from initial expectations that inflation will rise from its current 2.2% to 2.75% by the end of the year to 2.5%, with lower oil prices seen as main contributor to BoE’s forecast revision. 

Financial markets expect the UK central bank to deliver four or five 25 basis points rate cuts by June next year, in comparison to expectations for more aggressive action by the US central bank. 

British pound rose to the highest since March 2023 in immediate reaction to BoE’s decision and likely to further benefit from central bank’s hawkish stance.