The Bank of England has decided to keep UK interest rates on hold at 5% for the second meeting in a row. This decision comes after the US Federal Reserve cut rates for the first time in four years. UK inflation remained at 2.2% in August, above the Bank’s 2% target, leading to the decision to keep rates steady. Bank of England Governor Andrew Bailey remains optimistic that there will be further rate cuts in the future as inflation pressures ease.
Investors welcomed the news by driving the S&P 500 to a record high on Wall Street. While some experts predict that UK interest rates will fall to 3.25% by next summer, others believe that the Bank will proceed cautiously due to persistent inflationary pressures.
The Bank of England also announced that it will maintain its bond-selling program to reduce its balance sheet, with economists keeping an eye on key factors such as services inflation, wage growth, and the overall economic performance to determine future rate cuts. Despite the disappointment for borrowers, savers stand to benefit from the steady interest rates. Overall, the decision to hold rates will have an impact on households contending with high living and borrowing costs, businesses facing loan repayments, and investors navigating the changing economic landscape.
While the odds of a November rate cut have dropped to 60%, it is clear that the Bank of England is taking a cautious approach to managing interest rates in response to economic conditions both domestically and globally.
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