Bank of England presses pause on rate cuts, highlights 'gradual approach'

LONDON — The Bank of England on Thursday said it would hold interest rates steady following its initial cut in August, even after the U.S. Federal Reserve opted for a jumbo rate cut the day before.

The Monetary Policy Committee voted by 8 to 1 to hold, with the dissenting member voting for another 0.25 percentage point reduction.

A "gradual approach" to monetary easing remained appropriate, with services inflation staying "elevated," the committee said. The U.K. economy, which has exited a recession but recorded sluggish growth this year, is expected to return to an underlying pace of around 0.3% growth per quarter in the second half, it added.

The MPC was assessing a mixed bag of data in making its rate decision, with headline inflation consistently coming in near its 2% target but price rises in services — accounting for around 80% of the U.K. economy — ticking higher to 5.6% in August. Wage growth in the U.K. cooled to a more than two-year low over the three months to July, but remained relatively high at 5.1%.

The British pound was bolstered by the BOE and Fed announcements, trading up 0.72% against the U.S. dollar at $1.3306 at 12:10 p.m. London time Thursday. That was the highest rate since March 2022, according to LSEG data.

Global equity markets meanwhile rallied Thursday, with the pan-European Stoxx 600 index 1.45% higher.

Also being monitored Thursday was the BOE's annual announcement on the pace of quantitative tightening, or QT. The central bank voted to reduce its stock of U.K. government bonds – known as gilts – by £100 billion ($133 billion) over the next 12 months through active sales and the maturation of bonds.

That amount was in line with the prior period, against the expectation of some for an acceleration