Bank of England holds interest rates at 5%

The Bank of England has held interest rates at 5 per cent after voting by 8-1 for no change to monetary policy in September.
The nine-strong monetary policy committee said it was adopting a “gradual approach” to lowering interest rates as inflation is expected to creep up for the rest of the year.
The decision, which was in line market expectations, comes after latest inflation figures showed that headline consumer price inflation (CPI) was stable at 2.2 per cent in August, but key measures of underlying inflation and core prices rose last month.
The Bank expects CPI to end the year at 2.5 per cent, driven up by rising household energy bills from next month. The figure is lower than the 2.75 per cent forecast in August and is the result of lower-than-expected petrol prices after oil prices have declined. The Bank targets a rate of 2 per cent annual inflation.
Lower interest rates reduce borrowing costs for households and companies, bringing down mortgage rates and helping to stimulate the economy.
Andrew Bailey, the Bank’s governor, said: “Inflationary pressures have continued to ease since we cut interest rates in August. The economy has been evolving broadly as we expected. If that continues we should be able to reduce rates gradually over time but it is vital that inflation stays low, so we need to be careful not to cut too fast or by too much.”
The MPC voted narrowly by 5-4 to cut interest rates for the first time in four years in August, taking the base rate from 5.25 per cent to 5 per cent. Financial markets expect another quarter-point cut before the end of the year, marking a more gradual loosening compared with the US Federal Reserve, which carried out an outsized half-point cut on Wednesday.
Swati Dhingra, an external member of the MPC, was the only policymaker to vote for a rate cut this month, arguing that inflation “had been on a firm downward trajectory for some time”. Sir Dave Ramsden, deputy governor, voted to keep rates unchanged after voting for a rate cut at the last three meetings.
A majority of the MPC said that in “the absence of material developments, a gradual approach to removing policy restraint would be warranted”.
CPI has fallen from a peak of 11.1 per cent in 2022 to close to the Bank’s 2 per cent target as energy prices and supply chain shocks from the pandemic have unwound. The Bank’s ratesetters have said that they are more closely watching developments in wages and inflation in the services sector, which rose from 5.3 per cent to 5.8 per cent in August. Goods price inflation has been in negative territory for two consecutive months.
The Bank also voted to run down its stock of government bonds by another £100 billion over the coming 12 months, weighing on the government’s finances.
The pound climbed to a two-year high against the dollar after the interest rate decision, strengthening by 0.5 per cent to $1.329. Sterling gained against the US currency after the Fed’s outsized interest rate cut pushed the greenback down against a basket of currencies.