The Bank of England has decided to keep interest rates steady at 5%. This decision comes as the bank pauses its efforts to ease financial pressure on households. The monetary policy committee (MPC) voted 8 to 1 against lowering rates again, citing ongoing concerns about inflation.

Last month, the Bank cut interest rates for the first time since the pandemic began. This was due to a significant drop in inflation, which peaked above 11% in late 2022, the highest level seen since the early 1980s. Governor Andrew Bailey noted that while inflation pressures have eased, people should not expect quick interest rate cuts.
In August, the annual inflation rate remained at 2.2%, slightly above the Bank’s target of 2%. Many experts anticipated that the Bank would hold rates steady. Following the announcement, the pound rose to $1.33, its highest value against the dollar since March 2022.

Bailey said, “The economy is developing as we expected. If this trend continues, we can gradually reduce rates. But we must ensure inflation stays low, so we shouldn’t cut rates too quickly or too much.”
Meanwhile, the US Federal Reserve recently cut its interest rates by half a percentage point for the first time in four years. The European Central Bank has also lowered rates twice, by a quarter-point each time.

Many economists believe the Bank of England may start cutting rates again in the coming months if inflation continues to decrease. Financial markets are predicting a possible quarter-point reduction to 4.75% at the next meeting in November.
Inflation in the UK has decreased significantly since its peak. This decline was partly due to the rise in energy prices after Russia’s invasion of Ukraine. Inflation has now returned to more manageable levels, closer to the Bank’s target.

Since the rate cut last month, the MPC has noted that inflation pressures are continuing to ease. However, one committee member, Swati Dhingra, voted for another rate cut immediately, differing from most of the panel.

The Bank projects that inflation may rise to about 2.5% by the end of this year, slightly lower than its previous estimate. This rise is linked to steady price growth in the UK service sector and a strong jobs market.

In their meeting minutes, the MPC stated that monetary policy must remain restrictive until the risks of inflation rising above 2% are further reduced. The Bank is also continuing to sell government bonds it acquired during its crisis-era quantitative easing program. It plans to cut its bond stock by £100 billion over the next year, reducing it to £558 billion from a peak of £895 billion.

This development is likely to attract attention from Chancellor Rachel Reeves as she prepares for next month’s budget. There is speculation that she may change the government’s fiscal rules to exclude the effects of the Bank’s bond sales, potentially freeing up around £20 billion for other uses.