Commuters cycle past the Bank of England (BOE) (left) in the City of London, England, Monday, September 16, 2024.
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LONDON – The Bank of England said on Thursday it would keep interest rates steady following its first cut in August, despite the Federal Reserve opting to cut interest rates sharply the day before.
The Monetary Policy Committee voted 8 to 1 to remain unchanged, with dissenting members voting in favor of a 0.25 percentage point rate cut.
The committee is assessing a mix of data, with headline inflation staying close to the 2% target but price rises in services, which account for about 80% of the UK economy, rising to 5.6% in August. In the three months to July, wage growth in the UK fell to its lowest level in more than two years, but remained at a relatively high level of 5.1%.
Even if the Federal Reserve cuts interest rates by 50 basis points this cycle starting on Wednesday, the Bank of England has confirmed its expectation to keep interest rates unchanged. While markets this week are pricing in a more than 50% chance of a more aggressive approach, many strategists expect a smaller rate cut of 25 basis points at the September meeting.
Federal Reserve Chairman Jerome Powell said at a press conference that the central bank is “working toward a situation that restores price stability without the painful rise in unemployment that sometimes comes with inflation.” Recent U.S. labor market data has raised concerns about the extent of the slowdown in the world’s largest economy.
Boosted by the news from the Federal Reserve, the pound rose 0.5% against the dollar, to $1.327 at 11:15 am London time on Thursday. Meanwhile, global stock markets rose, with pan-European stocks Stoke 600 The index rose 1.34%.
The Bank of England voted 5-4 in August to cut its key interest rate from 5.25% to 5%, and is widely expected to keep it there until its next meeting in November.
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Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, told CNBC’s “Signpost Europe” that the Fed’s decision to cut interest rates by half a percentage point will not prompt the Bank of England to cut interest rates by itself in September. Cut interest rates.
However, Ducrozette said shortly before the decision that applying the Fed’s reaction function – the factors that guide its monetary policy decisions – to the Bank of England would provide “a stronger case” for a rate cut on Thursday. Provide evidence.
“It’s not that inflation is high today, or that unemployment in the UK is still relatively low, that you shouldn’t look ahead, if you add the same pre-emptive policy to the UK situation, I think the case will More powerful,” Ducrozette said.
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