LONDON (dpa-AFX) - The Bank of England left its interest rate unchanged and softened its pace of quantitative tightening on Thursday, as policymakers were wary about risks to inflation in the U.K.
The BoE Monetary Policy Committee, led by Governor Andrew Bailey, voted 7-2 to maintain the bank rate at 4.00 percent.
The central bank had reduced the rate five times since August 2024, which is now at its lowest since early 2023.
MPC members Swati Dhingra and Alan Taylor sought a quarter-point reduction in the bank rate citing that the disinflation process was continuing.
The BoE announcement came a day after the U.S. Federal Reserve, led by Jerome Powell, reduced its interest rate by a quarter-point, marking the first cut this year as the labor market cools and inflationary pressures build. The Fed has signaled two more reductions this year.
The MPC also voted by a majority of 7-2 to lower the stock of government bond purchases held by the central bank by GBP 70 billion from October 2025 to September 2026, to a total of GBP 488 billion.
A majority of members said a decrease in the pace of quantitative easing to GBP 70 billion from GBP 100 billion over the previous year, would be consistent with the key principles and objective of the MPC.
Bailey said, 'We are not out of the woods yet.' Any further reductions in interest rates will need to be made gradually and carefully.
In the statement, the BoE repeated that a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate.
As inflation remained stubbornly high at 3.8 percent in August, markets remain split on the timing of the next rate cut.
ING economist James Smith said the BoE is still biased towards cutting rates further. The economist expects two to three further 25 basis point moves by next summer but said whether another cut will be in this year is uncertain.
'We still narrowly favor a November cut, assuming there's better news in the next set of inflation numbers,' Smith said.
The Confederation of British Industry Chief Economist Alpesh Paleja said the MPC remain wary of stubborn price pressures though a weakening jobs market and signs of slower wage growth support further rate cuts.
'The risk is that the expected inflation 'hump' this Autumn feeds into wages and price setting, at a time when households' inflation expectations are rising,' Paleja said.
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