The BOE kept rates at 5.00% and emphasized the “gradual” approach to tapering

In an 8-1 vote, members of the Bank of England (BOE) voted to keep the official Bank Rate at 5.00% in September.

Swati Dhingra, a known dovish member, voted for another rate cut of 25 bps after a similar cut in August.

The result of the vote is much less “finely balanced” than the 5-4 decision to cut rates last month and the 7-2 score that markets expected this time.

To further reduce liquidity in the financial system, members of the Monetary Policy Committee (MPC) also voted unanimously to continue reducing its holdings of UK government bonds (gilts) by £100 billion in the next 12 months until September 2025.

Members generally noted the “absence of material developments” since the last decision, leading them to believe that “a gradual approach to removing policy constraint remains appropriate.”

They added:

“Monetary policy will have to remain tight for a long enough time until the risks to the sustainable return of inflation to the 2% target over the medium term further dissipate.”

TL;DR: Are the UK dates changing since the August decision? Not that bad.

Meanwhile, the latest economic forecasts reflected lower growth and inflationary 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 CPIwhich was expected to reach 2.8% by December in August, may now reach only 2.5% “towards the end of this year”.

However, the BOE also noted that it was closely monitoring inflation markers such as service price inflation and wage growth “remained high” despite recent declines.

A BOE staff indicator model also suggested that, contrary to official data, underlying unemployment has grown steadily in recent quarters.

Yes!

Link to the official September BOE Monetary Policy Statement

In his press release, Governor Andrew Bailey emphasized the bank’s cautious approach to easing, sharing that BOE ‘should be able to cut rates gradually over time’ if the economy continues to perform as expected.

He later echoed the BOE’s measured approach, saying “it is vital that inflation remains low, so we must be careful not to cut too fast or too much.“

Market reactions

The pound sterling against major currencies: 5 min

GBP chart overlay against major currencies by TradingView

Sterling, which pared some of its gains in the European session ahead of the release, rose on the BOE’s decision.

One possible reason is that the markets were expecting at least two votes in favor of cutting rates instead of the 8-1 results we got.

The official statement that policy will “need to remain tight for a long enough time” also encouraged GBP bulls as it advocated a more measured pace of easing instead of back-to-back interest rate cuts.

Sterling pulled back most of its post-BOE peak in early US trading, before sustained demand kept it below its intraday highs. It saw the strongest pullbacks against safe havens like the USD and JPY and was the most resilient against commodity-linked currencies like the AUD and NZD.