UK interest rates live: Bank of England holds at 5% after shock US Fed cut

The value of the pound rose to its highest levels since March 2022, just above $1.33, having traded around $1.3266 ahead of the Bank of England’s decision.

It comes a day after the Federal Reserve opted to cut US interest rates for the first time in four years, by a shock 0.5 per cent.

Jo Pocklington, of Purplebricks Mortgages said: “There’s absolutely no need for homeowners to panic about the base rate being held today.

“Mortgage rates are nothing like what they were two years ago and there’s no reason to believe they’ll return to the levels seen by the end of 2022 any time soon. Given it was a close call on whether the Bank of England would drop the base rate in August, it’s not a huge surprise to see rates held for September.”

Suren Thiru, economics director at the Insitute of Chartered Accountants, warned that the Bank’s decision today “will be a notable setback to households contending with burdensome mortgage bills”.

Mr Thiru said: “While this decision doesn’t mean the end of the rate-cutting cycle, it does suggest that the pace of policy loosening is likely to be painfully cautious, with rate setters still concerned that underlying inflation remains too high.

“Although only one rate-setter voted to loosen policy, the relatively dovish tone of the minutes suggest that the Monetary Policy Committee is shifting towards cutting interest rates when it next meets in November.

“Continuing to keep interest rates elevated risks hampering the government’s ambition of significantly higher annual GDP growth by keeping borrowing costs too high for too long, limiting investment and growth opportunities for businesses.”

Alpesh Paleja of the Confederation of British Industry said he expects an interest rate cut in November.

He said: “Monetary policy will be walking a fine line for a little while yet: between balancing upside risks to inflation, but not being too tight so as to choke off activity. Developments in fiscal policy in October’s Budget will also be a key consideration for growth prospects.

“We still anticipate another rate cut in November, and a few more next year, in line with the MPC (Monetary Policy Committee) moving at a slow but steady pace. On their own, lower interest rates will be a welcome respite to households and businesses.”

The pound strengthened after the Bank’s decision to hold rates, while the FTSE 100 Index pared back gains after surging ahead of the vote.

Sterling lifted 0.7 per cent to $1.33, and was 0.3 per cent higher at €1.19.

The FTSE 100 stood 0.9 per cent higher, up nearly 74 points at 8326.9, just after the decision, having at one stage risen 1.3 per cent higher in late morning trading.

Eight of the nine Bank of England policymakers voted to keep interest rates unchanged on Thursday.

The eight policymakers who voted to keep the base rate unchanged were the Bank’s governor Andrew Bailey, Sarah Breeden, Megan Greene, Clare Lombardelli, Catherine Mann, Huw Pill, Dave Ramsden, and the committee’s new member Alan Taylor, of Columbia University.

Swati Dhingra, an associate professor at the London School of Economics, once again voted to reduce the base rate by 0.25 percentage points.

After the Bank of England voted to hold rates at 5 per cent, governor Andrew Bailey 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’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much.”

The rate-setting Monetary Policy Committee voted by a majority of eight members to one to hold interest rates at 5 per cent.

One member voted to reduce the base rate by 0.25 percentage points to 4.75 per cent.

The Bank of England has voted to hold interest rates at 5 per cent, in line with economists’ expectations.

The Bank of England will keep its main interest rate at 5 per cent, but reduce it in November despite inflation being expected to stay above the central bank’s 2 per cent target, a comfortable majority of economists predicted in a poll by Reuters.

Analysts noted that the Bank’s rate-setters would also have more information on the fiscal outlook by November, with chancellor Rachel Reeves’ Budget expected on 30 October.