Bank of England rate cut expected as Federal Reserve holds again | Business News

The Bank of England will implement its first interest rate cut since 2020 at midday on Thursday, if financial markets and many economists are right, hours after the US central bank signaled it could act next month.

The Federal Reserve kept its benchmark rate in the 5.25%-5.50% range on Wednesday night, but downgraded its view on inflation to “somewhat elevated” and praised “further progress” in the right direction.

The message was exactly what was expected and was considered to open the door to a cut in the next meeting, which will end on September 18.

Federal Reserve Chairman Jay Powell told reporters it was possible as long as the data continued to move in the right direction.

Latest on money: Major banks cut rates ahead of Bank of England announcement

The Federal Reserve’s announcement cleared the way for Bank of England to take center stage the next day.

This interest rate decision was seen as more balanced, but likely, by the majority of economists polled in advance by the Reuters news agency.

There were 65% expectations of a reduction from 5.25% to 5%, based on market expectations reported by LSEG.

But many commentators added that a lack of guidance from the Bank meant a rate cut was far from being realized.

This has been partly attributed to the recent UK election, in which members of the Bank’s monetary policy committee are keen to preserve their independence.

A rate cut would be a welcome step for millions of borrowers, such as mortgage holders, who have felt the impact since the Bank began its battle against inflation in December 2021.

The UK was the first major Western economy to react to the pick-up in the pace of price growth, which began after the COVID pandemic subsided.

However, inflation peaked following the Russian invasion of Ukraine, when the costs of energy and many key commodities reached unprecedented levels.

It created a pressure on living standards that became widely known as the cost of living crisis, a pressure that has been evolving ever since.

There have been 14 consecutive interest rate rises imposed by the Bank to stifle demand in the UK economy, but it has maintained the rate since the last rise was implemented in August last year.

Since then, elements of inflation, such as services, have proven sticky and the Bank has also consistently warned that the pace of wage growth was too high to allow for a rate cut.

At noon on Thursday it will reveal not only its latest interest rate decision, but also the quarterly monetary policy report containing the latest Bank staff projections for inflation, economic growth and employment.

The Federal Reserve’s interest rate decision and accompanying statement did little to move financial markets initially, as the core message was already largely discounted, analysts said.

Stocks on Wall Street rise

However, US stocks later found momentum and the tech-focused Nasdaq rose 3%. The broader S&P 500 rose nearly 2%.

The dollar lost some marginal ground, as expected due to the fact that the prospect of lower interest rates tends to weaken the local currency.

For its part, the Bank of England will likely outline a very cautious path for upcoming interest rate cuts, should the nine-member rate-setting committee support a cut by a majority vote.

Expectations of a rate cut, which have existed all year, have led lenders to adjust their own rates based on the latest speculation.

An important element of the current cost of living crisis is the additional pain borrowers face due to the Bank’s inflationary medicine.

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Mortgage holders, for example, have been faced with paying hundreds of extra pounds a month by having to enter into new fixed rate deals, while landlords have been passing on their own increases in borrowing costs to tenants.

Record high rents have been exacerbated by a lack of available stock.

Matt Smith, mortgage expert at Rightmove, commented on the outlook: “If the bank rate is cut it will be really positive news and we would expect more to come as the economy continues to stabilise.

“If not, people shouldn’t worry too much, as it’s very likely to happen in September, and I would expect mortgage rates to remain stable and maybe even go down a little, although not as fast as if there is a cut.” “