In an 8-1 vote, Bank of England (BOE) members voted to keep their official bank rate at 5.00% in September.
Swati Dhingra, a known dovish member, voted for another 25bps rate cut following a similar reduction in August.
The voting result is much less “finely balanced” than the 5-4 decision to cut rates last month and the 7-2 score that markets had expected this time.
To further reduce liquidity in the financial system, Monetary Policy Committee (MPC) members also voted unanimously to keep reducing its U.K. government bond (gilt) holdings by £100B over the next 12 months to September 2025.
Overall, members noted the “absence of material developments” since the last decision, leading them to believe that “a gradual approach to removing policy restraint remains appropriate.”
They added:
“Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”
TL;DR: The U.K.’s data swings since the August decision? Not that serious.
Meanwhile, the latest economic forecasts reflected lower growth and inflation expectations.
Quarterly GDP for Q3 and Q4, which was projected at 0.4% and 0.2% in August, is now seen at 0.3% for both quarters in September.
The 12-month CPI, which was expected to hit 2.8% by December in August, may now only reach 2.5% “towards the end of this year.”
However, BOE also noted that closely watched inflation markers like services price inflation and wage growth “remained elevated” despite their recent downticks.
A BOE staff indicator model also suggested that, contrary to official data, underlying unemployment has increased steadily over the last few quarters.
Yipes!
Link to official BOE September Monetary Policy Statement
In his presser, Governor Andrew Bailey highlighted the bank’s cautious approach to easing, sharing that BOE “should be able to reduce rates gradually over time” if the economy continues to evolve as expected.
Later, he repeated the BOE’s measured approach, saying that “it’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much.”
Market Reactions
British Pound vs. Major Currencies: 5-min
Overlay of GBP vs. Major Currencies Chart by TradingView
The British pound, which pulled back some of its European session gains before the release, shot higher at the BOE’s decision.
One possible reason is that the markets expected at least two votes favoring a rate cut instead of the 8-1 results that we got.
The official statement noting that policy will “need to continue to remain restrictive for sufficiently long” also cheered GBP bulls as it supported a more measured pace of easing instead of consecutive rate cuts.
Sterling pulled back most of its post-BOE spike by the start of U.S. session trading before sustained demand kept it just under its intraday highs. It saw its sharpest pullbacks against safe havens like USD and JPY and was most resilient against commodity-related currencies like AUD and NZD.