
Bank of England Holds Rates at 5%, Pound Reaches Highest Level Since March 2022, According to Reuters
LONDON (Reuters) – On Thursday, the Bank of England maintained its interest rates at 5% and agreed to reduce its holdings of British government bonds by an additional £100 billion (approximately $132.86 billion) over the next year, impacting the government’s financial position.
The Monetary Policy Committee decided with an 8-1 vote to keep rates steady, with the sole dissent coming from external member Swati Dhingra, who advocated for a quarter-point rate cut. This decision follows last month’s initial reduction in borrowing costs since 2020.
Following the announcement, the pound reached its highest level since March 2022, rising above $1.33, after trading at around $1.3266 beforehand. Against the euro, it saw an increase of approximately 0.3%, trading at 83.95 pence. Meanwhile, yields on British government bonds climbed, and London’s FTSE stock index moderated its gains to around 0.9% higher for the day.
Analyst Comments:
Chris Arcari, Head of Capital Markets, Hymans Robertson, Glasgow:
"Given the persistent core and services inflation, we anticipate that the Bank of England will gradually reduce rates. The market seems to be pricing in significant cuts ahead, with projections for the bank rate to dip to 3.3% annually by the end of 2025. On one hand, overall inflation held steady in August at 2.2% year-on-year. In contrast, core inflation unexpectedly rose to 3.6% year-on-year from 3.3% in July, indicating that strong growth continues to bolster the labor market."
Laura Cooper, Global Investment Strategist, Nuveen, London:
"The Bank of England is exercising patience, choosing a more cautious approach compared to its U.S. counterparts concerning future policy changes. As attention shifts to the fiscal environment and the upcoming October budget, the Bank’s hesitance to align with faster cuts seen elsewhere will be under scrutiny."
Jamie Niven, Senior Portfolio Manager, Candriam, London:
"The consensus was for the BoE to hold rates, though it leaned slightly hawkish with only one dissenting vote. We expect a 25-basis point cut in November, potentially replicated in December, but we strongly believe the terminal rate in the cutting cycle will be lower, especially when compared to expectations in the U.S. and eurozone."
Susannah Streeter, Head of Money and Markets, Hargreaves Lansdown, Bristol:
"There is still hopeful sentiment that the era of high interest rates is drawing to a close, which would ease the burden on consumers and businesses grappling with elevated borrowing costs. London-listed stocks are also feeling buoyed by recent decisions from the U.S. Federal Reserve, which has opted for its first rate cut in over four years."
Henry Cook, Europe Economist, MUFG, London:
"We anticipated a somewhat more divided vote than the 8-1 split we saw. Despite the push from hawkish members, ongoing nominal pay growth and underlying inflation remain significantly high, making consensus difficult for consecutive rate reductions."
Dean Turner, Chief European Economist, UBS Global Wealth Management, London:
"We forecast that the next interest rate cut will occur at the November meeting, supported by fresh forecasts that may indicate a modest reduction in future inflation, alongside insights from the budget reflecting the government’s approach to the fiscal gap."
Lindsay James, Investment Strategist, Quilter Investors, London:
"A rate cut would be welcomed by businesses and consumers alike, particularly with the economy hovering near a stall. Following a robust first half of 2024, challenges are emerging once more, suggesting that action from the BoE may be needed sooner rather than later."
Chris Scicluna, Head of Economic Research, Daiwa Capital Markets, London:
"We expect a rate cut in November, followed by a decision on whether to adjust rates by 25 bps at each meeting or quarterly."
Rupert Watson, Global Head of Macro and Dynamic Asset Allocation, Mercer, London:
"In light of persistent but declining inflation, the Bank of England opted to keep rates steady. However, they signaled that rate cuts could be forthcoming, as wage growth appears to be moving in the right direction, indicating the UK economy may be stabilizing in a way that allows the BoE to lower rates within the next 6 to 12 months."
Frances Haque, UK Chief Economist, Santander, London:
"Today’s decision to hold rates was anticipated, especially given Governor Bailey’s previous comments stressing the need for caution regarding the timing and magnitude of any rate cuts. Recent wage growth trends, which are critical for controlling inflation, have started to align with the Bank’s projections for Q3."
This decision is set against the broader trend of central banks globally moving towards lower interest rates as inflation pressures ease. Investors may need to prepare for an environment of decreased rates in the near future.