Bank of England Holds Rates and Extends Bond Reduction Plan
The Bank of England maintained its key interest rate at 5.0% and announced plans to reduce its holdings of British government bonds by another 100 billion pounds ($133 billion) over the next year. The Monetary Policy Committee voted 8-1 to keep rates steady, with only one member calling for a rate cut. Sterling rose above $1.33 following the decision, reaching its highest level since March 2022. The U.S. Federal Reserve recently cut rates by 0.5 percentage points, citing easing Inflation pressures. In contrast, the Bank of England emphasized the need for caution in cutting rates too quickly. The Central bank expects Inflation to reach around 2.5% by the end of the year, down from previous estimates. Financial markets now anticipate slower rate cuts in the UK compared to the U.S. over the next year. Additionally, the Bank of England plans to continue its quantitative tightening program to sell off government bonds purchased in previous stimulus efforts. This is seen as necessary to maintain flexibility in responding to future economic challenges. Finance Minister Rachel Reevescould could potentially exclude the impact of the Bank of England’s asset sales in upcoming fiscal rules, providing additional fiscal space. This move could be announced in the budget on October 30. The Bank of England reiterated that the quantitative tightening process is progressing smoothly and has only a modest impact on overall monetary policy.
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Emma Collins, graduated in Financial Economics from the University of Chicago in the USA in 2016. She has since worked at an asset management firm in New York, where she specializes in investment strategies and portfolio management. Emma has a keen interest in financial analysis and has published several articles in renowned financial journals. Her work focuses on providing actionable insights to investors, and she is known for her forward-thinking approach to managing financial portfolios.