Bank of England keeps interest rates unchanged

The Bank of England (BOE) said it wanted to be more cautious about monetary easing after its September 19 policy meeting, leaving its benchmark interest rate unchanged at 5%. Its decision was in line with economists’ forecasts in a survey of economists. Reuters.

Inflation in the UK is close to the 2% target, but the price of services – which account for 80% of the economy – is still rising, up 5.6% in August. Similarly, wage growth is strong, at 5.1%.

“It is important to keep inflation low, so we need to be careful not to cut interest rates too quickly or too much,” said BOE Governor Andrew Bailey, who last month cut the benchmark interest rate by 25 basis points (0.25%) from a 16-year high.

The BOE’s decision sent the pound soaring to its strongest level against the dollar in 18 months. It is now worth $1.33.

Investors also believe that the BOE adjusts policy more slowly than the US Federal Reserve (Fed). On September 18, the Fed reduced its reference interest rate by another 50 basis points (0.5%), due to confidence that inflation is cooling down sustainably.

“The BOE’s cautious stance clearly contrasts with the Fed’s aggressive approach at the start of the easing cycle,” said Luke Bartholomew, chief economist at investment fund Abrdn. Investors expect the BOE to cut interest rates by another 40 basis points (0.4%) by the end of the year.

The UK economy fell into recession late last year and has returned to growth this year, albeit slowly. The Bank of England forecasts GDP to grow by 0.3% each quarter in the second half of the year.

In addition to the UK, the Norwegian Central Bank also maintained interest rates at 4.5% to cool inflation. This is the highest level in 16 years. This agency forecasts monetary easing in the first quarter of next year.