Bank of England leaves key interest rate unchanged at 5.0% as expected

investing.com 19/09/2024 - 11:04 AM

Bank of England Holds Interest Rate at 5.0%

The Bank of England (BoE) has kept its benchmark interest rate unchanged at 5.0%, aiming for a gradual approach to potential future policy easing after a rate cut last month.

Economists widely anticipated this decision, especially as UK consumer prices rose by 2.2% annually, nearing the bank’s medium-term target. However, services inflation remains high at 5.6%, considered critical for the BoE’s assessments.

This announcement follows a significant 50 basis point cut by the Federal Reserve and a second reduction by the European Central Bank since the COVID-19 pandemic. Despite these changes, the persistent high services inflation in the UK prompts many to expect the BoE to implement rate cuts more cautiously than other central banks.

Mixed indicators on price pressures include a slowdown in wage growth and economic stagnation reported in July. In August, the BoE had reduced the rates from a 16-year high of 5.25%.

Policymakers indicated that “limited news” from British economic indicators influenced their decision, cautioning about the “risks of higher inflation.” They expect price growth may accelerate again in 2024 and reaffirmed the importance of maintaining a restrictive monetary policy until inflation risks diminish further.

The BoE stated, “In the absence of material developments, a gradual approach to removing policy restraint remains appropriate,” deciding on the level of policy restrictiveness on a meeting-by-meeting basis.




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