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The Bank of England has voted to hold interest rates at 5%
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with policymakers signalling that they would take a gradual approach to lowering borrowing costs over the months ahead
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Eight members of the Nine Strong Monetary Policy Committee supported an interest rate hold
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with only Swati-Dingra backing a second cut. The decision was widely anticipated by markets
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although the odds of a further 25-bases point cut had crept up slightly in the days leading up to the decision
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Some investors thought the MPC might be tempted to waive through a second rate cut
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after the US Federal Reserve opted for a bumper 50 basis point cut last night
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ysts interpreted the Fed's move as a precautionary cut to ensure the economy did not suffer a major deterioration
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And while the Bank of England did not follow the Fed's lead, Andrew Bailey, the bank's governor, flagged that further rate cuts were coming
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He said, the economy has been evolving broadly as we expected. If that continues, we should be able to reduce rates gradually over time
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The decision came after figures out yesterday showed inflation remained just above 2%
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pushed up by strong services inflation. Services inflation rose to 5.6% in August, up from 5.2% the month
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before, with the increase fuelled by a very big monthly increase in airfares
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Services inflation is the one to watch, with policy makers flagging this as a key gauge of
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domestic inflationary dynamics given the predominance of a services sector in the UK economy But most economists think August large increase is likely to prove a temporary bump Bank officials expect the measure to ease over the remainder of the year even though
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the headline rate will pick up slightly. Nevertheless, the minute showed a range of views
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about the likely persistence of inflation, with some members worried that price pressures could
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prove more entrenched. These members were worried that the economy might have experienced
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structural shifts, such as changes in wage and price setting following the major supply shocks that
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had been experienced over recent years. Despite this, the majority of members thought the current
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level of interest rates was appropriate, and Bailey cautioned that the MPC needed to be careful
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not to cut rates too fast or too much. So, what does this mean for you? Mortgage and savings
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rates are unlikely to move a lot in response to this decision. That's because it was widely
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expected. Interest rates are also likely to continue falling in the months ahead, which will
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push mortgage costs lower. However, the bank's relatively cautious tone means that house
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might have to wait a bit longer to see those lower mortgage rates. Laura Souter, Director of Personal Finance at AJ Bell, said some first-time buyers might wait
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for further interest rate cuts this year before buying a new home. For more ysis and commentary on today's interest rate hold, head to cityam.com or download
