Bank of England Holds Rates as Federal Reserve Cuts with Both Now at 4% pa

The Bank of England Monetary Policy Committee (MPC) has just within the last 30 minutes confirmed by a majority of 7:2 that it will hold UK interest rates at 4.0% pa.

This follows the Federal Reserve’s committee confirming yesterday that it has cut rates from a range of 4.25%- 4.50% pa to 4.0%-4.25% p.

This means UK and US central bank rates are now broadly on par.

Both in the US and the UK, cental banks are ‘gambling’ given an economic slowdown but upward pressure on inflation. 

• Yesterday, UK CPI inflation for August held firm at 3.8% pa but our old measure of inflation, RPI actually decreased by 0.2% pa to 4.6% pa.  UK September inflation is forecast to rise to 4.0% in September.
• Late last week, the US Labor Department released its latest CPI inflation figures for August, showing an increase of 0.2% to 2.9% pa.

This has been a tough call on both sides of the pond, with economies slowing down meaning stimulus is needed but inflation remains stubborn and looks set to rise for both.

Comment

On a positive note, with the announcements of $150bn of US corporate AI/Tech investment in the UK tech sector, having interest rates at par should stabilise currency exchange rates between the £ and the $, meaning stable economic trading conditions for commercial development.

Both countries need to grow their respective economies given unemployment is rising and we believe the decisions made by both central banks are to be expected in these rollercoaster times of rising unemployent, tariff driven inflation, immigraton issues and global geo-political risks.