UK holds policy rate at 4%… inflationary pressure

The UK's central bank has held its policy rate.

The Bank of England (BOE) on the 18th (local time) held a Monetary Policy Committee (MPC) meeting and kept the policy rate at 4.00% per annum. Of the nine MPC members, seven supported keeping the rate. The other two preferred a 0.25% percentage-point cut to 3.75%. The result matched market experts' expectations. The BOE has cut its policy rate five times since August last year through last month. The 4.00% policy rate is the lowest since February 2023.

The Monetary Policy Committee assessed that medium-term inflationary pressures remain high. The UK's August consumer price index (CPI) inflation rate was 3.8% year-on-year, the same as in July, remaining well above the BOE's 2% target. In particular, the food and beverages inflation rate (5.1%) showed a rising trend for five consecutive months. BOE Governor Andrew Bailey said, "We expect the inflation rate to return to our 2% target," adding, "(However) risks have not yet been removed, so future rate cuts should be gradual and cautious."

They decided to slow the pace of quantitative tightening (QT). As with the policy rate, the decision was 7 to 2. Until now, the BOE had been shrinking assets by £100 billion per year (KRW 189 trillion), but from next month it will reduce that to £70 billion per year (KRW 132 trillion), slowing the pace of tightening. The median of experts' projections surveyed by Reuters was £67.5 billion (KRW 128 trillion). This slowdown is the first since the BOE began reducing assets in 2022.