19 September: Analysts Expect Cuts Before Christmas
The Bank of England held its main interest rate at 5% today despite a 0.5% percentage point cut by the US Federal Exchange last night, which lowered its lending rate to 4.75%, writes Kevin Pratt.
The Bank’s Monetary Policy Committee (MPC) remains concerned about ‘persistent’ inflation in the UK economy. Prices rose by 2.2% in the year to August, the same as the month before and just above the Bank’s 2% target, but in the service sector the figure was 5.6% (see story below).
Interest rates are raised and maintained at high levels by central banks to sap demand and thus ease inflationary pressures. This comes at the price of slowing economic activity, with individuals and businesses reluctant to borrow money for purchases and investment.
The Federal Reserve implemented its rate cut to stimulate the US economy after a range of indicators suggested there was a growing danger of recession if borrowing costs were not reduced. Further cuts are expected later this year and throughout 2025.
The MPC cut the Bank Rate to 5% from 5.25% on 1 August. Commentators believe it will be reduced at the next scheduled meetings in November or December.
Eight of the nine-strong Committee voted in favour of holding the Rate at 5% today, with one arguing for a cut to 4.75%. The Bank said the decision was determined “by the need to squeeze persistent inflationary pressures out of the system so as to…
