The Bank of England holds interest rates steady in its September policy meeting

The Bank of England held interest rates steady at 5.0% in its September policy meeting, with an 8-1 vote in favor of maintaining the current rate. This follows the central bank’s first rate cut since 2020 last month.

UK policymakers also agreed to reduce their stock of British government bonds by an additional £100 billion over the next 12 months.

The BoE’s cautious approach contrasts with the U.S. Federal Reserve’s more aggressive 50 basis point rate cut on Wednesday. BoE Governor Andrew Bailey indicated that cooling inflation leaves room for gradual rate cuts in the coming months.

Economists expect the BoE to continue easing policy, but likely at a slower pace, as inflation remains a central concern. The BoE revised its inflation forecast downward, now expecting it to reach 2.5% by the end of the year, compared to earlier projections of 2.75%, with lower oil prices being a key factor in the adjustment.

Financial markets are anticipating four or five 25 basis point rate cuts from the BoE by June next year, a more measured approach compared to the more aggressive expectations for the U.S. central bank.

In response to the BoE’s decision, the British pound rose to its highest level since March 2023 and may continue to benefit from the central bank’s relatively hawkish stance.