The Bank of England announced on Thursday its decision to keep interest rates unchanged at 5.0% after a previous cut in August, despite the U.S. Federal Reserve implementing a substantial rate reduction the day before. The Monetary Policy Committee voted 8 to 1 in favor of holding rates, with one member dissenting in favor of a further 0.25 percentage point decrease.
According to the committee, a gradual approach to monetary easing was deemed appropriate due to the persistently high services inflation. Although the U.K. economy has emerged from a recession, it has experienced sluggish growth this year. The committee anticipates a return to a baseline growth rate of approximately 0.3% per quarter in the latter part of the year.
In its rate deliberation, the MPC considered a combination of data points. While headline inflation has consistently hovered around the 2% target, services inflation, which represents a significant portion of the U.K. economy, rose to 5.6% in August. Wage growth in the U.K. decreased to its lowest point in over two years during the three months leading up to July, but it remained relatively strong at 5.1%.
