Bank of England to maintain interest rates at 5% this Thursday

The Bank of England is expected to maintain its interest rates at 5% during the upcoming Monetary Policy Committee meeting. This decision follows a recent rate cut from 5.25% in August, marking the first reduction since 2020, aimed at alleviating financial pressure on borrowers. Governor Andrew Bailey emphasized the need for caution in adjusting rates, indicating that rapid cuts could be detrimental. Economists believe that the current inflation rate of 2.2% is insufficient to prompt immediate rate changes, suggesting that the MPC will likely wait for more economic data before making further adjustments. Analysts, including Matt Swannell from the EY Item Club, noted that the MPC has signaled that consecutive rate cuts are unlikely unless economic indicators worsen significantly. The latest inflation figures are seen as a positive sign, indicating that underlying price pressures are easing. Sanjay Raja from Deutsche Bank echoed this sentiment, suggesting that the MPC may consider a more substantial policy shift in November, coinciding with the next forecast update and the autumn Budget scheduled for October 30. Rob Wood from Pantheon Macroeconomics also supported the view that the August inflation data does not necessitate an urgent rate cut. He highlighted that a continued decline in service sector prices could provide the MPC with more confidence in their decision-making. The Bank of England is also observing the European Central Bank's recent rate cuts, which may influence its future policy decisions. Overall, the Bank of England's cautious approach reflects a careful balancing act between supporting economic recovery and managing inflationary pressures, with future decisions likely hinging on upcoming economic data and fiscal developments.