Fed Lowers Interest Rates for the First Time in 2021, Following Trump's Outburst at the US Federal Reserve
The Bank of England has decided to keep interest rates at 4% for the remainder of the year, following a meeting of its Monetary Policy Committee (MPC) this week. This decision comes after a series of indicators suggesting that the growth of economic activity has moderated, and job gains have slowed, leading to an increase in downside risks to employment.
The decision to hold interest rates comes as a surprise to some, as investors had been betting that there would be no further cuts this year and only one or two in 2026. In contrast, the US Federal Reserve, which cut interest rates last night, had indicated there would be two more rate cuts this year.
The UK's inflation rate remains a concern for the Bank of England, with figures showing that inflation in August remained at 3.8%, the highest in the G7 and almost double the Bank's 2% target. Inflation remains "somewhat elevated" above the 2% target at 2.9%, according to Laith Khalaf, head of investment analysis at AJ Bell.
One unnamed official suggested that the rate cut would need to be reversed, while another official, thought to be Stephen Miran, pencilled in reductions all the way to between 2.75% and 3%. However, the MPC ultimately decided to hold rates steady.
The decision to hold interest rates may have significant implications for millions of borrowers in the UK. With inflation high and economic growth slowing, many are hoping for a rate cut to help stimulate the economy and reduce the cost of borrowing. However, with the Bank of England in a cautious mode on interest rates due to the inflation problem, it remains to be seen whether rates will be cut in the near future.
DIY investing platforms such as AJ Bell, Hargreaves Lansdown, interactive investor, InvestEngine, and Trading 212 may see increased activity as investors seek to take control of their investments in light of the uncertain economic outlook.
In the US, the Federal Reserve's decision to cut interest rates last night was met with approval from some members of the Trump administration. Peter Navarro, the policy advisor of Donald Trump, was noted to sit on the Federal Reserve at the end of this weekend and was voting for a larger interest rate cut.
Overall, the Bank of England's decision to hold interest rates at 4% for the rest of the year is a cautious move that reflects the current economic challenges facing the UK. With inflation high and economic growth slowing, the Bank of England will need to carefully weigh the risks and benefits of any future rate cuts to ensure that they are in the best interests of the UK economy.
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