UK's Monetary Policy Committee decides to maintain current interest rates
The Bank of England and the Federal Reserve have made their latest moves in the ongoing game of monetary policy.
In the UK, the Monetary Policy Committee (MPC) has held the interest rate steady at 4% for the time being, according to its latest decision. The MPC has shown a commitment to a "gradual and careful approach" to easing monetary policy, as it seeks to address any persistent inflationary pressures.
The breakdown of votes among the MPC members revealed a split, with Swati Dhingra and Alan Taylor voting for a 25 basis point cut, while the rest of the committee voted in favour of maintaining the current rate. Most experts predict a 7-2 split in favour of keeping rates steady at the upcoming MPC meeting.
The MPC's decision comes as inflation, as measured by the Consumer Prices Index (CPI), remained unchanged at 3.8% for August. However, sticky inflation is said to be restricting the opportunity for a fourth rate cut this year from the Bank of England.
Ed Monk, pensions and investment specialist at Fidelity International, argues that there may be no further cuts this year and just one through the whole of 2026. On the other hand, Sanjay Raja, chief UK economist at Deutsche Bank, thinks that the Q4 cut will likely come in December. Rob Morgan, chief investment analyst at Charles Stanley, believes that December's meeting could be more finely balanced, and it's likely the next rate cut won't arrive until 2026.
Meanwhile, across the pond, the Federal Reserve (Fed) has cut US interest rates by 25 basis points to 4.00-4.25%. This move was made amid rising US inflation, which climbed to 2.9% in August, running ahead of the Fed's target. There is debate about whether the Fed's decision to cut rates was influenced by political pressure from US president Donald Trump.
The UK's economic landscape is also marked by changes in mortgage and savings rates. The Moneyfacts Average Mortgage Rate has fallen by 0.44% over the past year, offering some relief to homebuyers. However, the Moneyfacts Average Savings Rate has decreased by 0.34% year-on-year, currently at 3.46%, which may not be good news for savers.
The timing of the Autumn Budget, scheduled for 26 November, looks set to tie the Bank of England's hands at its next MPC meeting. If there's any surprise in the MPC minutes, it's likely to come from the Bank's forward guidance. There are three paths the MPC can take: stick to its current guidance of 'gradual and careful' rate cuts, tweak its current guidance to 'gradual and cautious' rate cuts, or simply, drop the current guidance entirely.
Former MPC rate-setter Michael Saunders believes the next rate cut will most likely come in early 2026, rather than at either of the Q4 2025 meetings. Deutsche Bank expects three more UK interest rate cuts before 2027. As the economic landscape continues to evolve, these predictions will undoubtedly be subject to change.
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