Bank of England holds interest rates amid US Fed cuts

The Bank of England is expected to maintain its main interest rate at 5% during its upcoming announcement, despite a significant cut from the U.S. Federal Reserve. This decision comes amid persistent inflation concerns, particularly in the services sector, which constitutes a large portion of the British economy. Recent data indicated that inflation in the U.K. remained steady at 2.2% in August, slightly above the central bank's target of 2%. The Monetary Policy Committee's previous meeting saw a close vote, with four members advocating for no change in rates. The central bank had previously reduced rates for the first time since the pandemic began, reflecting a cautious approach to managing inflation while considering economic recovery. Globally, central banks have been adjusting borrowing costs in response to inflation trends, with the U.S. Fed recently lowering its rate to approximately 4.8%. This shift indicates a broader trend of easing monetary policy as inflation rates decline from their peak levels. Looking ahead, the Bank of England is anticipated to consider further rate cuts in November, especially with the upcoming government budget announcement. The new Labour government faces a significant fiscal challenge, needing to address a £22 billion deficit, which may lead to tax increases and spending cuts, potentially impacting the economic outlook and inflation in the near term.