The Bank of England reduced interest rates from a 16-year high on Thursday, following a close vote among policymakers who were split on whether inflation pressures had decreased enough.
– United Kingdom BoE Interest Rate Decision (August):
Actual: 5.00%
Expected: 5.00%
Previous: 5.25%
– United Kingdom BoE MPC Vote to Cut Rates (August):
Actual: 5 members
Expected: 6 members
Previous: 2 members
– United Kingdom BoE MPC Vote to Keep Rates Unchanged (August):
Actual: 4 members
Expected: 3 members
Previous: 7 members
Governor Andrew Bailey, who led the 5-4 decision to lower rates by a quarter-point to 5%, said the BoE would proceed carefully from now on.
“We need to ensure that inflation remains low and be cautious about cutting interest rates too quickly or too much,” he said in a statement about the decision.
The decision was expected according to a Reuters poll of economists, but financial markets had only slightly over a 60% chance of a rate cut.
Rates had been held steady for almost a year—the longest period without change at the peak of a BoE tightening cycle since 2001—and this is the first rate cut since March 2020, at the beginning of the COVID-19 pandemic.
In June, the BoE had voted 7-2 to keep rates unchanged, and the minutes from the most recent meeting showed that the decision to cut rates was a close call for some members, similar to when rates were previously held steady.
British consumer price inflation hit the BoE’s 2% target in May and remained there in June, down from a peak of 11.1% in October 2022.
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