The Bank of England on Thursday, September 19, decided to keep interest rates at the same level.

It is worth noting that last month the central bank of the United Kingdom began to ease monetary policy. In September, the UK financial regulator, judging by its actions, did not record in the space of the country’s economic system such factors and circumstances that can be interpreted as sufficient arguments for the speedy continuation of the movement along the trajectory of lowering the cost of borrowing. It is also noteworthy that the Bank of England decided to maintain interest rates a day after the Federal Reserve began easing monetary policy. On Wednesday, September 18, the central bank of the United States cut its benchmark interest rate by a half percentage point. The financial regulator of the United Kingdom did not take this decision as a signal for action.

The Monetary Policy Committee voted by 8 to 1 to hold. The dissenting member voted for a 0.25 percentage point cut.

The report, which was published by the mentioned committee, notes that the gradual approach of the financial regulator of the United Kingdom to monetary policy easing continues to be appropriate. Also, in the relevant context, it was separately underlined that the service sector continues to experience elevated inflation.

It is worth noting that after the difficulties of recent years, the economic system of the United Kingdom has been able to return to an upward trajectory. At the same time, the corresponding growth is sluggish. The Monetary Policy Committee expects the appropriate rate to return to an underlying pace of rising of about 0.3% in the foreseeable future. In this case, it implies a change in the pace of the process before the end of the current year.

Against the background of news from the Bank of England, the pound sterling strengthened. The currency of the United Kingdom rose by 0.72% against the US dollar, reaching $1.3306. LSEG data indicates that the specified indicator is the highest since March 2022.

The growth of global stock markets was also recorded on Thursday. The pan-European Stoxx 600 index rose 1.4%.

The United Kingdom’s financial regulator also voted to reduce its stock of bonds, known as gilts, by ￡100 billion ($133 billion). The Bank of England intends to implement the relevant plan over the next twelve months through active sales and the maturation of bonds.

During the coronavirus pandemic, the balance sheet of the United Kingdom’s financial regulator increased. The Bank of England sought to stimulate the positive dynamic of the country’s economic system before changing course and starting quantitative tightening in February 2022.

It is worth noting that the Monetary Policy Committee decided on the cost of borrowing against the background of ambiguous economic data. Currently, in the United Kingdom, headline inflation is on a steady trajectory towards the Bank of England’s 2% target. The corresponding indicator is at 2.2%. At the same time, prices for services are rising in the United Kingdom. In August, the corresponding figure increased to 5.6%. It is worth noting that the share of the service sector in the structure of the economic system of the United Kingdom is about 80%. There is also a slowdown in wage growth in the UK. Over the three months to July, this indicator dropped to a more than two-year low. At the same time, the rate of wage growth in the United Kingdom still remains high, at 5.1%.

Returning to the issue of the impact of the Fed’s decisions on the monetary policy strategy of the Bank of England, it is worth noting that in this case, the preliminary expectations of experts and what can be called the final reality did not fully coincide. Most analysts interviewed by the media predicted that the financial regulator of the United Kingdom would not significantly adjust interest rates depending on the actions of the central bank of the United States. At the same time, the final decision of the Bank of England turned out to be somewhat unexpected, although it did not become sensational or incomprehensible in the context of the correspondence to the economic situation.

It is also worth noting that the Fed has embarked on a long-awaited easing of monetary policy as part of an approach that has turned out to be more rapid and ambitious than preliminary expectations for relevant decisions. Fed Chairman Jerome Powell said at a press conference on Wednesday that the goal of the central bank of the United States is to form such a situation within the framework of which price stability will be restored and at the same time the negative scenario of a painful increase in the unemployment rate will not be realized. It is worth noting that the latest data on the state of affairs in the US labor market have provoked concerns about the likelihood of materialization of the risk of a slowdown in the economic system of this country, which is one of the largest in the world. In July, the unemployment rate in the United States unexpectedly rose to 4.3%. In August, the corresponding figure fell to 4.2%.

The media reports that the Bank of England could have decided to maintain interest rates even before it became known about the beginning of easing the monetary policy strategy of the financial regulator of the United States. It is highly likely that central banks around the world will form a vision of the prospects for global economic growth and the most likely dynamic of the state of affairs in the world financial environment, taking into account the mentioned actions of Washington and London.

Kyle Chapman, foreign exchange analyst at Ballinger Group, says that the Bank of England’s vote turned out to be more decisive and more hawkish compared to preliminary expectations. The expert also stated that this decision strengthened the pound and supported gilt yields. Kyle Chapman said that the September data indicate that the Bank of England is not in such a good position with respect to inflation as the Fed. The expert also stated that it is highly likely that in November the financial regulator of the United Kingdom will continue to ease monetary policy.

In August, the Bank of England cut its key rate to 5% from 5.25%. Currently, many experts, as reported by the media, are convinced that no changes will be made to the monetary policy strategy before the November meeting of officials of the mentioned financial institution.

Bank of England governor Andrew Bailey, during a conversation with media representatives on Thursday, said that he was optimistic about the prospects of the future. According to him, inflationary pressure in the United Kingdom will weaken to such a level after crossing which, conditions are formed for the continuation of the implementation of monetary policy easing measures. It can be assumed that this statement will be perceived by investors as a positive signal.

During a conversation with media representatives after the meeting of officials of the Bank of England, Andrew Bailey said that the job of the financial regulator of the United Kingdom is to ensure a steady inflation rate at the target level of 2%. In August the specified figure was 2.2%. In the relevant context, he also noted the significant progress of the UK central bank’s activities in the framework of efforts aimed at countering price increases. According to him, against the background of this result in August, there were factors favorable for easing monetary policy. At the same time, the Bank of England governor said that certain inflationary pressures in the United Kingdom still persist. In this context, he noted the increased rate of price growth in the service sector.

Andrew Bailey is convinced that the cost of borrowing in the United Kingdom is currently on a gradual path to decline. In the relevant context, he noted that this is good news. Also, Andrew Bailey stated his confidence in further easing of monetary policy, but at the same time noted that in order to make such decisions, the UK financial regulator needs to get more data on the state of affairs in the country’s economic system. Besides, he said that officials of the Bank of England will pay attention to this issue at every meeting.

Currently, the financial regulator of the United Kingdom is demonstrating caution in the context of its approach to adjusting the monetary policy strategy. At the same time, there is a high probability that the Bank of England will begin to take more extensive measures as part of lowering the cost of borrowing next year. The appropriate line of conduct will become a reality if the financial regulator is more confident that inflationary pressures are easing.

ING developed markets economist, James Smith, predicts that by the summer of next year, the Bank of England will lower the cost of borrowing to 3.25%. If this assumption is confirmed by reality, interest rates will be the lowest since November 2022.

James Smith says the Bank of England’s hawks are concerned that corporate behavior in the pricing and wage area is constantly changing in a way that makes it harder to reduce inflation on a sustained basis. At the same time, according to the expert, there is no certainty that the corresponding sentiments are typical in general for the overall position of the UK financial regulator. In this context, James Smith mentioned the fact that the Bank of England began easing monetary policy in August. The corresponding action of the financial institution is not consistent with the mentioned sentiments. The expert also says that the UK financial regulator is probably happy to tread carefully against the background of circumstances such as stable wage growth and steady inflation in the service area.

Moreover, James Smith is not sure that the cycle of monetary policy easing in the United Kingdom will differ significantly from the specifics of similar processes in the United States and other countries. Separately, the expert noted that the recorded volatility of inflation in the services area, as recognized by the Bank of England, is mostly down to volatile categories, which are of little importance in the context of monetary policy decisions.

James Smith also stated that job data, which is though admittedly of dubious quality right now, points to an ongoing cooldown too. The expert says that currently, the number of payrolled employees appears to be decreasing, which will inevitably become a factor impacting wage growth.

James Smith expects interest rate cutting by the United Kingdom’s financial regulator to accelerate after November. According to the expert, by that time the Bank of England will be more confident in the persistence of inflation. It is also expected that after November, a consensus will form among officials of this financial institution regarding the switch to the practice of back-to-back lowering of borrowing costs.

It is worth noting that currently, the level of interest rates which is observed in the United Kingdom is one of the highest among major economies. At the same time, the economic system of this country is still far from such a state of affairs, which is called overheating.

According to the media, there is currently a slowdown in the upward dynamic of consumer confidence in the United Kingdom. In the first months of 2024, the corresponding indicator showed an increase. Since then, the pace of the relevant process has slowed down. Currently, there is virtually no progress in the context of consumer confidence.

Business is demonstrating moderate investment activity in the United Kingdom nowadays. It is worth noting that in this case, moderation means the minimum level of the mentioned indicator. Against this background, there are arguments for assertions that the Bank of England should more intensively ease monetary policy.

City firm Capital Economics predicts that the financial regulator of the United Kingdom will lower the cost of borrowing by up to 3% as part of the current interest rate-cutting cycle. Their chief UK economist Paul Dales says that this company expects another decision to ease the monetary policy of the Bank of England in 2024. In this case, a decrease in the cost of borrowing by 25 basis points is predicted. At the same time, the expert noted that the pace of monetary easing by the Bank of England may accelerate next year. Paul Dales expects that eventually, the corresponding figure will fall to 3%. At the same time, the forecast is widespread in the markets, according to which the current cycle of monetary easing by the financial regulator of the United Kingdom will end with the cost of borrowing in the range from 3.25% to 3.5%.

Sanjay Raja, chief UK economist at Deutsche Bank, said that on Thursday, the main news was that the Bank of England’s policymakers announced the need for a slow and steady removal of policy restraints. This expert also drew attention to the fact that the decision to maintain the interest rate? was not unanimous. Separately, Sanjay Raja noted that the disagreements in the Monetary Policy Committee turned out to be less significant than preliminary assumptions about the relevant state of affairs. The expert also drew attention to the fact that the statement of the mentioned committee was more cautious than initial expectations in this regard. Sanjay Raja says that the possibilities for cutting interest rates in the fourth quarter of 2024 continue to be wide open. Separately, the expert drew attention to the fact that the financial regulator of the United Kingdom left its quantitative tightening envelope fixed at 100 billion pounds. According to Sanjay Raja, this decision indirectly signals that the Bank of England puts more weight on the total stock of gilt reduction as opposed to its active sales footprint. Total sales over the next 12 months will amount to 13 billion pounds. Sanjay Raja expects this process to reduce the impact on cash borrowing for the remainder of the current fiscal year and the next fiscal year.

Gabriella Dickens, G7 economist at AXA Investment Managers, predicts that in November the Bank of England will lower the cost of borrowing to 4.75% during the next meeting. The expert also expects that by the end of next year, the corresponding figure will be 3.75%. Gabriella Dickens predicts that the Bank of England will make a quarterly decision on the continuation of monetary policy easing шт 2025. The expert says that lowering the cost of borrowing by 25 basis points in November corresponds to the logic of the statement by the financial regulator of the United Kingdom that a gradual pace of tightening seems appropriate.

Gabriella Dickens also expects the services Consumer Price Index (CPI) inflation and wage growth to slow down over the next 12 months. Moreover, according to the expert, a tougher-than-expected fiscal policy strategy following the October 30th Budget is realistic, including if it takes into account the latest signals from the government of the United Kingdom.

Japanese bank MUFG suggests that the UK financial regulator may two more times lower the cost of borrowing by the end of the current year. Also, the experts of this bank say that the decision, which became known on Thursday, is not a surprise. Separately, analysts at a Japanese financial institution drew attention to the fact that the pound remains the top G10 currency performer year-to-date. At the same time, in their opinion, this advantage may begin to decrease.

By keeping interest rates at the same level, the Bank of England has lagged behind financial regulators in other regions of the world in terms of the intensity of monetary policy easing actions. This financial institution reduced the cost of borrowing in August by 25 basis points. The corresponding decision was the first move within the framework of easing the monetary policy of the Bank of England. At the same time, the Fed on Wednesday cut interest rates by 50 basis points. The European Central Bank has also started easing monetary policy this year. This financial regulator has already decided on the cutting deposit rate twice. Currently, the corresponding indicator is 50 basis points below its peak.

The Swiss National Bank is also already involved in the practice of easing monetary policy. This financial regulator has lowered the cost of borrowing twice this year. In Switzerland, interest rates are currently 50 basis points below the peak level.

Adrien Pichoud, chief economist at Bank Syz, says that the difference in the monetary policy of the Bank of England and other financial regulators has become a factor in the strengthening of the pound.