Fed and ECB Cut Rates Earlier but Remain in 'Cautious Mode'
Foreign Media and Markets "Expect Rate Cut in November"
The Bank of England (BOE), the central bank of the United Kingdom, kept its benchmark interest rate unchanged at 5% during its monetary policy meeting on the 19th (local time).
According to major foreign media including Bloomberg, at the meeting, 8 out of 9 BOE members voted in favor of keeping the rate unchanged. Only one external member, Swati Dhingra, supported a 0.25% rate cut.
The previous day, the U.S. Federal Reserve (Fed) implemented a 'big cut' by lowering interest rates by 0.5 percentage points for the first time in four years, and the European Central Bank (ECB) cut rates by 0.25% on the 12th, contrasting with the BOE's more cautious stance.
Earlier last month, the BOE lowered the benchmark interest rate by 0.25 percentage points from 5.25% to 5%. The vote at that time was 5 to 4. Consequently, the market widely believed that it would be difficult to cut rates again just over a month after the previous reduction.
Andrew Bailey, Governor of the BOE, said, "Inflationary pressures are easing, and the economy is proceeding as we expected," adding, "If this trend continues, we may gradually lower interest rates." However, he cautioned, "It is important to keep inflation low, so we must be careful not to cut rates too quickly or too much."
Major foreign media expect the BOE to make a second rate cut as early as November. The market anticipates about five rate cuts of 0.25 percentage points each by June 2025.
The consumer price index increase rate announced the previous day for August was relatively low at 2.2% year-on-year but still exceeded the BOE's target of 2%.
Dean Turner, Chief Economist for Europe at UBS Global Wealth Management, said, "The decision to keep the benchmark rate unchanged aligns with our long-held view that the BOE will approach the start of a rate-cutting cycle cautiously," adding, "Considering there are few signs of a recession, policymakers have enough time." He predicted the BOE would make a second rate cut around November.
At the monetary policy committee meeting, all members agreed to maintain the pace of quantitative tightening (QT) by reducing government bond holdings by ?100 billion (approximately 176 trillion won) during 2024?2025.
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