The Bank of England has kept interest rates unchanged, with Governor Andrew Bailey indicating that borrowing costs are likely to continue declining this year.
In an 8-1 vote, policymakers decided to maintain rates at 5%, as Bailey welcomed further easing in inflationary pressures since the Bank’s rate cut in August. However, officials expressed caution about cutting rates too quickly, citing a “tight” labor market.
Minutes from the Bank’s September meeting warned that current wage agreements are still incompatible with achieving the 2% inflation target. Although consumer prices, as measured by the CPI, rose by 2.2% in August, inflation is expected to increase later in the year due to a 10% rise in the energy price cap in October. The Bank noted that this would be somewhat offset by falling petrol and diesel prices.
Bailey stated, “Inflationary pressures have continued to ease since we cut interest rates in August. The economy has been evolving broadly as we expected. If that continues, we should be able to reduce rates gradually over time.”
This decision follows the US Federal Reserve’s half-percent rate cut on Wednesday and its indication of further cuts to come. The European Central Bank (ECB) has also cut rates twice since the summer. In August, the Bank of England lowered rates from 5.25%.
Bailey signaled a more cautious approach, emphasizing the need for more evidence that underlying inflation is slowing. “It’s vital that inflation remains low, so we need to be careful not to reduce rates too quickly or by too much,” he said.
This cautious stance was shared by the rest of the Monetary Policy Committee (MPC), with most members agreeing that, barring significant developments, a gradual easing of policy would be appropriate.
