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

Matt Swannell, chief economic adviser at the EY Item Club, said the Bank of England had“sent a clear message that back-to-back rate cuts were unlikely” after last month’s reduction, unless subsequent economic data was weaker than expected.

He said the latest official data, which showed Consumer Prices Index (CPI) inflation remained at 2.2 per cent in August, would not be enough to prompt the Bank to start cutting rates more quickly.

Sanjay Raja, chief UK economist for Deutsche Bank, has predicted that the recent inflation figures of 2.2 per cent “won’t be enough to trigger a surprise rate cut” today.

“Instead, the MPC will likely take this as a positive sign that underlying price pressures are easing, and could warrant a further dial down of restrictive policy in November, when it conducts its next forecast update,” he said.

“The MPC will also have more information on the fiscal outlook, with the autumn Budget slated for 30 October.”

The Bank of England’s rate-setters could take note of the European Central Bank’s (ECB) decision to cut interest rates in the Eurozone last week, marking the second reduction in a row.

The ECB’s rate-setting council lowered the main deposit rate from 3.75 per cent to 3.5 per cent at the meeting last week.

In his latest column, The Independent’s chief business commentator James Moore writes:

Let’s start with the good news: August’s inflation number came in unchanged at 2.2 per cent. While that is higher than the Bank of England’s 2 per cent target, it is in line with City forecasts and beneath the 2.4 per cent the Bank itself had predicted at this stage. Compared to the double-figure price rises Britain was experiencing in the painful summer of 2023, it looks very good.

Food prices, a persistent bugbear, rose by just 1.3 per cent – down from 1.5 per cent. At the factory gate, an increase of just 0.2 per cent was recorded while the cost of raw materials actually fell, as did that of fuel.

There are a few buts coming. One thing to watch is the cost of services – from haircuts to handymen and everything in between; service prices rose by a headline rate of 5.6 per cent compared with this time last year, quite a bit worse than the previous month (5.2 per cent). The City had pencilled in 5.5 per cent.

The real villain of the piece was aviation. Air fares traditionally rise in summer, but they rose by an extraordinary 22 per cent between July and August alone. Falling restaurant and hotel bills helped offset that to some degree.

The Bank of England’s rate-setting Monetary Policy Committee has long been concerned about the cost of services, which represent by far the biggest part of the UK economy. This price tends to be closely linked to the cost of paying the staff who provide them. Wage settlements have been declining, to a two-year low 5.1 per cent in the three months to July compared with 5.4 per cent in the three months to May.

But the price consumers pay for services still represents an inflationary troll lurking under the bridge.

The US Federal Reserve has broken a four-year run and cut its benchmark interest rate by half a percentage point to 4.75-5.0 per cent.

This significant move signals that the US central bank believes it is winning the war on inflation and will now focus on preventing the job market from weakening.

One immediate effect should be lower borrowing costs for both consumers and businesses in the run-up to November’s presidential election.

Oliver O’Connell reports from New York:

In a statement after cutting interest rates for the first time in four years, the US Federal Reserve’s Open Market Committee said: “The Committee seeks to achieve maximum employment and inflation at the rate of two percent over the longer run.

“The Committee has gained greater confidence that inflation is moving sustainably toward two percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”

Hours after of the Bank of England’s interest rate decision, Norway’s central bank opted to keep its policy interest rate unchanged at a 16-year high of 4.5 per cent.

“The committee judges that a restrictive monetary policy is still needed to bring inflation down to target within a reasonable time horizon,” the central bank said in a statement.

It added: “The policy rate forecast in this report implies that the policy rate will remain at 4.5% to the end of 2024 before being gradually reduced from the first quarter of 2025.”

Trader bets suggest the markets believe there is a 21 per cent chance that the Bank of England will cut its base interest rate again today, Sky News reports.

As the Bank of England mulls whether to cut interest rates while seeking to keep inflation at bay, the Office for National Statistics has revealed that the rate of consumers defaulting on direct debits rose by 1 per cent in August – marking an increase of 12 per cent over the past year.

Compared with August 2023, the direct debit failure rate for electricity and gas payments rose by 43 per cent, while water payments rose 20 per cent and mortgages by 11 per cent.