Bank of England Maintains Interest Rates as US Federal Reserve Holds Pause
The Bank of England (BOE) has decided to keep its benchmark rates unchanged after the US Federal Reserve’s recent decision to continue its pause. The Monetary Policy Committee (MPC) voted 5 to 4 in favor of maintaining the Bank Rate at 5.25%, while a minority of members wanted to increase rates by 25 basis points to 5.5%.
In addition, the MPC unanimously agreed on quantitative tightening (QT), with plans to reduce UK government bond purchases by £100 billion over the next twelve months.
The Bank of England stated that the twelve-month Consumer Price Index (CPI) inflation fell from 7.9% in June to 6.7% in August, moving closer to its target rate of 2%.
However, the UK’s gross domestic product (GDP) experienced a decline of 0.5% in July. Expectations for GDP growth in the third quarter of 2023 are modest.
The MPC emphasized its commitment to closely monitoring market conditions and inflation, stating that it needs to implement measures that are “sufficiently restrictive” in order to reach the target inflation rate.
In a letter to the Chancellor of the Exchequer, Bank Governor Andrew Bailey acknowledged that food price inflation appears to have peaked, while core goods inflation is showing signs of decline. However, he also highlighted that external pressures, such as the ongoing conflict in Ukraine, continue to impact commodity prices.
The next review of interest rates by the MPC is scheduled for November 2, 2023.
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