The Bank of England is widely expected to keep interest rates unchanged at 5% when its Monetary Policy Committee announces its decision at midday on Thursday, despite the US Federal Reserve cutting rates by half a percentage point yesterday. Most economists predict no change after official data showed inflation remained above the 2% target in August.
Consumer Prices Index (CPI) inflation stayed at 2.2% in August, unchanged from July, while core inflation rose to 3.6% from 3.3%. The Bank cut rates from 5.25% last month, the first reduction since 2020, but Governor Andrew Bailey has cautioned against cutting too quickly or too much.
Experts suggest the inflation figures are not enough to prompt a second consecutive cut. Matt Swannell of the EY Item Club noted the MPC had signalled that back-to-back cuts were unlikely unless economic data weakened. Sanjay Raja of Deutsche Bank said the data could warrant a further rate reduction in November, when the Bank conducts its next forecast update and after the autumn Budget on October 30.
Rob Wood of Pantheon Macroeconomics agreed that August's inflation reading gives the MPC little reason to rush, though another month of slowing services sector prices would provide more comfort. The European Central Bank also cut rates last week, lowering its main deposit rate to 3.5%.
