The Bank of England Keeps Interest Rates on Hold

On September 19^th, 2024, and despite a full 50 basis point reduction in US interest rates announced by the Federal Reserve the day before, the Bank of England, (BOE) advised they were holding interest rates steady at 5%, with the MPC (Monetary Policy Committee) voting by 8 – 1 to keep the cost of borrowing steady. Whilst many experts, investors and analysts expected a hold on interest rates, the word coming out of the BOE was that they are waiting on further data to confirm inflationary pressures have subsided before making a second cut in the cost of borrowing. The decision also pushed sterling to its strongest level against the US Dollar since March 2022, and is just a hair’s breadth away from its two year high against the Euro.

In a statement by the BOE Governor Andrew Bailey he said “We should be able to reduce rates gradually over time, it is vital that inflation stays low, so we need to be careful not to cut too fast or by too much.” Later on the Governor was also quoted as saying “I think we are on a gradual path down. That is the good news. I think interest rates are going to come down. I am optimistic on that front, but we do need to see some more evidence. We need to see that sort of residual element now fully taken out, to keep inflation sustainably at the 2% target.”

Released minutes of the MPC meeting said, “In the absence of material developments, a gradual approach to removing policy restraints remains appropriate.” The minutes also reiterated the need for policy to remain ‘restrictive for sufficiently long’ and that the MPC will take a meeting-by-meeting approach to interest rates. This gradual approach comes despite recently released data showing August inflation at 2.2% (below the BOE’s forecast of 2.4%), however, service inflation remains sticky at an uncomfortable high of 5.6%. Some experts are suggesting that service inflation may well hamper any further rate cuts this year, but they are definitely in the minority.

Experts advise the general feeling in the financial markets is that at the next policy meeting of the MPC on November 7th, a rate cut is almost a racing certainty, especially as inflation is below the BOE’s expectation. However, the BOE have warned that they expect headline inflation to increase to 2.5% by the end of Q4 this year. Elsewhere, interest rates were held steady in Japan, China , Taiwan, and Turkey, whilst Oman and South Africa both cut interest rates.