Bank of England freezes rate after jumbo US cut

Bank of England freezes rate after jumbo US cut

Bank of England policymakers voted 8-1 for no rate change, having narrowly backed an August cut
Bank of England policymakers voted 8-1 for no rate change, having narrowly backed an August cut. Photo: Ben Stansall / AFP/File
Source: AFP

Don't miss out! Get your daily dose of sports news straight to your phone. Join YEN's Sports News channel on WhatsApp now!

The Bank of England on Thursday kept its key interest rate at 5.0 percent, deciding against consecutive cuts one day after a bumper reduction from the US Federal Reserve.

Following a regular meeting BoE governor Andrew Bailey said the central bank needed "to be careful not to cut too fast or by too much", as UK inflation stays above its target.

Policymakers voted 8-1 for no change, having narrowly backed a cut in August. One member wanted the rate reduced to 4.75 percent this time around.

Official data this week showed UK annual inflation unchanged at 2.2 percent in August from July -- above the BoE's two-percent target rate.

But inflation has retreated massively since striking four-decade highs above 11 percent in late 2022.

The US central bank on Wednesday lowered borrowing costs for the first time since the start of the Covid pandemic by opting for a reduction of 50 basis points.

Read also

Tokyo surges on weak yen as Asian traders cheer big US rate cut

The European Central Bank (ECB) last week cut for the second time in 2024. Analysts expect the BoE to next trim borrowing costs in November, while Bailey signalled that more easing was on the way.

"The economy has been evolving broadly as we expected," he said. "If that continues, we should be able to reduce rates gradually over time. But it's vital that inflation stays low."

Pound high

The British pound hit the highest level against the dollar in 2.5 years following Thursday's decision, with the greenback weakened also by the Fed's decision this week.

"By leaving interest rates at five percent the Bank of England showed it is more like the ECB than the Fed and is cutting interest rates gradually rather than rapidly," noted Paul Dales, chief UK economist at Capital Economics research group.

Read also

Asian markets fluctuate on uncertainty over Fed rate plan

"We expect only one further 25 basis-points cut this year, at the next meeting in November, although the pace of cuts may quicken next year with rates eventually falling to three percent."

The BoE hiked borrowing costs 14 times between late 2021 -- when they stood at a record-low 0.1 percent -- and the second half of last year.

Supply-chain disruptions following Covid lockdowns, together with soaring food and energy prices caused by Russia's invasion of Ukraine, sent global inflation surging and led to aggressive rate-tightening by central banks around the world.

The BoE finally cut last month, the first time since early 2020, from a 16-year high of 5.25 percent.

Further reductions could hand Britain's economy a much-needed boost, as retail banks tend to pass on the cuts for home loans, boosting consumers' disposable income.

Official figures last week showed that UK economic output stalled in July, dealing a blow to the new Labour government that has put growth expansion at the top of its priority list.

Read also

US Fed set to make first rate cut since 2020

Prime Minister Keir Starmer's Labour government won power at the start of July, ending 14 years of Conservative rule.

New feature: Сheck out news that is picked for YOU ➡️ click on “Recommended for you” and enjoy!

Source: AFP

Authors:
AFP avatar

AFP AFP text, photo, graphic, audio or video material shall not be published, broadcast, rewritten for broadcast or publication or redistributed directly or indirectly in any medium. AFP news material may not be stored in whole or in part in a computer or otherwise except for personal and non-commercial use. AFP will not be held liable for any delays, inaccuracies, errors or omissions in any AFP news material or in transmission or delivery of all or any part thereof or for any damages whatsoever. As a newswire service, AFP does not obtain releases from subjects, individuals, groups or entities contained in its photographs, videos, graphics or quoted in its texts. Further, no clearance is obtained from the owners of any trademarks or copyrighted materials whose marks and materials are included in AFP material. Therefore you will be solely responsible for obtaining any and all necessary releases from whatever individuals and/or entities necessary for any uses of AFP material.