BOE Kept Rates at 5.00% and Emphasized Its ”Gradual” Approach to Easing

Bank of England members voted 8-1 to keep the bank’s official cash rate at 5.00% in September.

Swati Dhingra, a member known for her dovishness, voted for another 25 basis point rate cut after a similar cut in August.

The vote was much less “balanced” than the 5-4 rate cut last month and the 7-2 result markets had expected this time.

To further reduce liquidity in the financial system, MPC members voted unanimously to continue reducing their holdings of UK government bonds by £100bn over the next 12 months until September 2025.

In general, members noted the “absence of substantive developments” since the last decision, leading them to believe that “A gradual approach to removing political restrictions remains appropriate.”

They added:

“Monetary policy will need to remain tight for long enough. “Until the risks to a sustained return of inflation to the 2% target over the medium term are dissipated.”

Summary: Are UK data volatility since August decision not that serious?

Meanwhile, the latest economic forecasts reflected lower expectations for growth and inflation.

quarterly GDP GDP growth for the third and fourth quarters is expected to be 0.4% and 0.2% in August, and is now expected to be 0.3% for both quarters in September.

the 12-month consumer price index“The US economic growth rate is expected to reach 2.8% by December in August, but it may now reach only 2.5% “by the end of this year.”

However, the Bank of England also noted that closely watched inflation indicators such as Inflation of service prices Wage growth remained “high” despite recent declines.

The Bank of England’s staff index model also indicated that, contrary to official data, latent unemployment It has been steadily increasing over the past few quarters.

Dry!

Link to the Bank of England’s official Monetary Policy Statement for September

In his press conference, Governor Andrew Bailey highlighted the Bank’s cautious approach to easing, sharing that “The Bank of England should be able to gradually lower rates over time.” If the economy continues to develop as expected.

Later, he reiterated the Bank of England’s measured approach, saying: “It is vital that inflation remains low, so that we can continue to grow.” We have to be careful not to cut too quickly or too much.“

Market Reactions

British pound against major currencies: 5 minutes

The pound, which had given up some of its gains in the European session before the decision was announced, rose after the Bank of England’s decision.

One reason for this may be that markets were expecting at least two votes in favor of a rate cut rather than the 8-1 result we got.

The official statement indicated that monetary policy “will need to remain tight for a sufficiently long period” which also encouraged the GBP bulls as it supported a more conservative pace of easing rather than successive rate cuts.

Sterling gave back most of its post-BoE rally early in the US session before continued demand kept it just below the day’s highs. Sterling saw its biggest losses against safe havens such as the US dollar and Japanese yen and was more resilient against commodity-linked currencies such as the Australian and New Zealand dollars.