UK's central bank maintains status quo on interest rates, defies market predictions
The Bank of England maintained its cautious approach to interest rate cuts at their August meeting, following a reduction of 0.25 points in July. The central bank's aim remains a medium-term inflation rate of 2 percent, but the pace of future cuts depends on how much underlying disinflationary pressure eases.
In August, the inflation rate in the UK stood at 3.8 percent, higher than the target of 2 percent. This high inflation rate has led some economists, such as Dirk Chlench of LBBW, to believe that the Bank of England's latest decision is a pause in the rate-cutting process.
Chlench reiterates that the central bank considers further easing of monetary policy appropriate, but he does not expect any interest rate cut until December due to high inflation. He also notes that his prediction does not include any future changes in the economy or monetary policy that could affect interest rate decisions.
In a statement, Governor Andrew Bailey emphasized a gradual and cautious approach to future interest rate cuts, stating, "Although we expect inflation to return to our target of 2 percent, we are not out of the woods yet." This sentiment was reflected in the central bank's statement, which was relatively unchanged from the previous one.
At the August meeting, seven members of the monetary policy committee voted in favor of the decision to keep interest rates unchanged. Two members advocated for a 0.25 percentage point cut in interest rates.
Looking ahead, the next monetary policy committee meeting will be led by Jerome Powell, the chairman of the US Federal Reserve, who has indicated openness to a possible interest rate cut at the September meeting in 2025, though he has not definitively committed to it. Since August 2024, interest rates have been reduced by a total of 1.25 points.
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