UK INTEREST RATES LIVE: BANK OF ENGLAND HOLDS AT 5% AFTER SHOCK US FED CUT

Key Points

• Breaking: Bank of England holds base rate at 5%
• How have interest rates changed since the financial crisis?
• US Federal Reserve and ECB both opt for interest rate cuts

Bank’s rate-setters vote 8-1 to hold at 5%

The rate-setting Monetary Policy Committee voted by a majority of eight members to one to hold interest rates at 5 per cent.

One member voted to reduce the base rate by 0.25 percentage points to 4.75 per cent.

Breaking: Bank of England votes to keep rates at 5%

The Bank of England has voted to hold interest rates at 5 per cent, in line with economists’ expectations.

Economists forecast rate cut in November

The Bank of England will keep its main interest rate at 5 per cent, but reduce it in November despite inflation being expected to stay above the central bank’s 2 per cent target, a comfortable majority of economists predicted in a poll by Reuters.

Analysts noted that the Bank’s rate-setters would also have more information on the fiscal outlook by November, with chancellor Rachel Reeves’ Budget expected on 30 October.

Value of sterling rises after inflation data published

The value of sterling rose on Wednesday as data showed that British inflation held steady in August but rose in the services sector – which is closely watched by the Bank of England – to 5.6 per cent from 5.2 in July.

Money markets priced in a 20 per cent chance of a 25 basis points rate cut from the Bank on Thursday, down from roughly 28 per cent right after the inflation data.

US Fed improves rate forecasts

As well as cutting rates by a bumper 0.5 per cent to a range of 4.75-5 per cent, the US Federal Reserve also dramatically lowered its forecasts of where the rate will sit in the future.

As well as a further drop of 0.5 per cent anticipated this year, a majority the Fed’s rate-setters forecasee rates reaching 3.4 per cent next year, lower than the 4.1 per cent previously predicted. The rate is then expected to fall to 2.9 per cent in 2026.

However Fed chief Jerome Powell suggested that officials would be prudent in incrementally lowering rates, after the surprise half-point cut.

“I do not think that anyone should look at this and say, oh, this is the new pace,” Mr Powell said. “We’re recalibrating policy down over time to a more neutral level. And we’re moving at the pace that we think is appropriate, given developments in the economy.”

Direct debit failure rate on mortgage payments rises 11% in a year, ONS says

As the Bank of England mulls whether to cut interest rates while seeking to keep inflation at bay, the Office for National Statistics has revealed that the rate of consumers defaulting on direct debits rose by 1 per cent in August – marking an increase of 12 per cent over the past year.

Compared with August 2023, the direct debit failure rate for electricity and gas payments rose by 43 per cent, while water payments rose 20 per cent and mortgages by 11 per cent.

Markets suggest 21 per cent chance of rate cut

Trader bets suggest the markets believe there is a 21 per cent chance that the Bank of England will cut its base interest rate again today, Sky News reports.

Norway keeps interest rates at 16-year high

Hours after of the Bank of England’s interest rate decision, Norway’s central bank opted to keep its policy interest rate unchanged at a 16-year high of 4.5 per cent.

“The committee judges that a restrictive monetary policy is still needed to bring inflation down to target within a reasonable time horizon,” the central bank said in a statement.

It added: “The policy rate forecast in this report implies that the policy rate will remain at 4.5% to the end of 2024 before being gradually reduced from the first quarter of 2025.”

What has US Fed said after first interest rate cut in four years?

In a statement after cutting interest rates for the first time in four years, the US Federal Reserve’s Open Market Committee said: “The Committee seeks to achieve maximum employment and inflation at the rate of two percent over the longer run.

“The Committee has gained greater confidence that inflation is moving sustainably toward two percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”

US Federal Reserve cuts interest rates by half point for first time in four years

The US Federal Reserve has broken a four-year run and cut its benchmark interest rate by half a percentage point to 4.75-5.0 per cent.

This significant move signals that the US central bank believes it is winning the war on inflation and will now focus on preventing the job market from weakening.

One immediate effect should be lower borrowing costs for both consumers and businesses in the run-up to November’s presidential election.

Oliver O’Connell reports from New York:

Fed slashes interest rates for first time in years. Here’s what that means for you

James Moore | What do this week’s inflation figures show?

In his latest column, The Independent’s chief business commentator James Moore writes:

Let’s start with the good news: August’s inflation number came in unchanged at 2.2 per cent. While that is higher than the Bank of England’s 2 per cent target, it is in line with City forecasts and beneath the 2.4 per cent the Bank itself had predicted at this stage. Compared to the double-figure price rises Britain was experiencing in the painful summer of 2023, it looks very good.

Food prices, a persistent bugbear, rose by just 1.3 per cent – down from 1.5 per cent. At the factory gate, an increase of just 0.2 per cent was recorded while the cost of raw materials actually fell, as did that of fuel.

There are a few buts coming. One thing to watch is the cost of services – from haircuts to handymen and everything in between; service prices rose by a headline rate of 5.6 per cent compared with this time last year, quite a bit worse than the previous month (5.2 per cent). The City had pencilled in 5.5 per cent.

The real villain of the piece was aviation. Air fares traditionally rise in summer, but they rose by an extraordinary 22 per cent between July and August alone. Falling restaurant and hotel bills helped offset that to some degree.

The Bank of England’s rate-setting Monetary Policy Committee has long been concerned about the cost of services, which represent by far the biggest part of the UK economy. This price tends to be closely linked to the cost of paying the staff who provide them. Wage settlements have been declining, to a two-year low 5.1 per cent in the three months to July compared with 5.4 per cent in the three months to May.

But the price consumers pay for services still represents an inflationary troll lurking under the bridge.

Inflation steady – but chances of another rate cut are slim

European Central Bank opt for consecutive rate cuts

The Bank of England’s rate-setters could take note of the European Central Bank’s (ECB) decision to cut interest rates in the Eurozone last week, marking the second reduction in a row.

The ECB’s rate-setting council lowered the main deposit rate from 3.75 per cent to 3.5 per cent at the meeting last week.

Inflation figures won’t be enough to trigger rate cut, economist forecasts

Sanjay Raja, chief UK economist for Deutsche Bank, has predicted that the recent inflation figures of 2.2 per cent “won’t be enough to trigger a surprise rate cut” today.

“Instead, the MPC will likely take this as a positive sign that underlying price pressures are easing, and could warrant a further dial down of restrictive policy in November, when it conducts its next forecast update,” he said.

“The MPC will also have more information on the fiscal outlook, with the autumn Budget slated for 30 October.”

Back-to-back cuts unlikely, analyst says

Matt Swannell, chief economic adviser at the EY Item Club, said the Bank of England had“sent a clear message that back-to-back rate cuts were unlikely” after last month’s reduction, unless subsequent economic data was weaker than expected.

He said the latest official data, which showed Consumer Prices Index (CPI) inflation remained at 2.2 per cent in August, would not be enough to prompt the Bank to start cutting rates more quickly.

How UK interest rates have changed since 2007

Good morning

Hi and welcome to our blog covering the Bank of England’s latest decision on interest rates that will happen at midday. We will bring you all the latest on the decision as well as reaction from top economists and policymakers.

House price growth slows but rents climb at near-record rate

Annual house price growth has slowed, but private rents continue to climb at a “near-record rate”, according to an Office for National Statistics (ONS) report – as many hard-pressed borrowers know:

Annual house price growth slows but rents climb at near-record rate, says ONS

How inflation news spelled blow for borrowers

Inflation rises to 2.2% for first time this year in blow to interest rate cut hopes

Savers £4bn better off thanks to higher easy-access rates

Savers are an estimated £4billion better off following improvements to easy-access rates in recent months, according to the City regulator.

The Financial Conduct Authority (FCA) said the average interest paid on easy-access savings accounts increased to 2.11% in June, up from 1.66% in July 2023, just before it published a review.

It said: “We estimate savers are £4 billion a year better off from higher interest rates as a result.”

A new consumer duty was introduced by the regulator last year, requiring financial firms to put consumers at the heart of what they do, including when designing products and communicating with customers.

In July 2023, the FCA also set out a 14-point action plan to ensure banks and building societies were passing on interest rate rises to savers appropriately, that they were communicating with customers more effectively and that they were offering them better savings rate deals.

The FCA said that while interest rates on savings accounts had been rising, this had been happening more slowly for easy-access accounts.

How inflation has accelerated or eased for everyday items

August’s inflation was unchanged at 2.2 per cent, higher than the Bank of England’s 2 per cent target but there was a wide variation in the rate across everyday goods and services.

Examples of how everyday costs changed:

Examples of how inflation has accelerated or eased for everyday items

MPC set to put interest rate cuts on hold

The Bank of England is expected hit the pause button on interest rate cuts after warning it needs to be “careful” not to rush the decision as pressures on inflation linger:

Bank of England set to pause interest rate cuts as ‘cautious tone’ sticks

How UK interest rates have changed since 2007:

Glimmer of hope for borrowers

The crumb of comfort for hard-pressed borrowers is that there will by ample scope for a cut in November if inflation remains below the Bank’s predicted path, writes James Moore:

Inflation steady – but chances of another rate cut are slim

Bank poised to hold rates at 5%, economists think

Read more:

Bank of England poised to hold interest rates at 5%, economists say

Welcome to our live coverage of the Bank of England’s interest-rate decision due to be announced on Thursday.