The Bank of England is anticipated to announce no changes in interest rates despite the recent cut by the U.S. Federal Reserve. Most economists expect the majority of the Monetary Policy Committee to maintain the bank’s main interest rate at 5%, primarily due to concerns about inflation, especially in the services sector, which makes up 80% of the UK economy.
Inflation in the UK stayed at 2.2% in August, with higher airfares balanced by lower fuel costs and expenses in restaurants and hotels. This keeps inflation slightly above the central bank’s target of 2% for the second consecutive month, following a drop in June to the target for the first time in nearly three years. The bank had reduced its main interest rate by a quarter-point last month, marking its first cut since the pandemic began, with four out of nine committee members voting for no change.
During the pandemic, central banks globally raised borrowing costs from almost zero as prices surged, initially due to supply chain disruptions and later because of Russia’s invasion of Ukraine, leading to increased energy expenses. As inflation rates have eased from historic highs lately, central banks have started lowering interest rates.
The Federal Reserve recently lowered its main interest rate by 0.5 percentage points to approximately 4.8% from a two-decade high of 5.3% where it had been for 14 months. It also hinted at additional cuts in the coming months. The Bank of England is projected to decrease borrowing costs further in its November meeting, especially with insights from the government’s budget on Oct. 30.
The new Labour government aims to address a £22 billion ($29 billion) deficit in public finances and has suggested potential tax hikes and reduced spending, which could impact the immediate outlook for the UK economy and put downward pressure on inflation.
Bank of England Likely to Maintain Interest Rates despite Significant US Fed Reduction
