After Europe, the UK Also Cuts Interest Rates... "Will Act Cautiously"

President Bailey "Do Not Expect Zero Interest Rates"
The Market Anticipates 1-2 More Rate Cuts Annually
ECB, Which Lowered Rates First, Struggles with Rising Inflation

Following the United States' announcement of an interest rate cut in September, the Bank of England (BOE), the central bank of the United Kingdom, also lowered interest rates for the first time in four years. However, the BOE emphasized "caution" and remained reserved about the future path of interest rates.

Andrew Bailey, Governor of the BOE, attended a press conference immediately after the monetary policy meeting on the 1st (local time), where the base rate was lowered by 0.25 percentage points to 5% per annum. He stated, "We will be careful not to cut rates too quickly or too much going forward." Regarding further rate cuts, he added, "We need to be confident that inflation will remain at a low level," and noted that it would be difficult to return to pre-COVID-19 levels.

Andrew Bailey, BOE Governor
Photo by Reuters Yonhap News

The minutes released that day also gave no indication of the next steps. Among the BOE's Monetary Policy Committee members, five voted in favor of the rate cut, while four voted to keep rates unchanged, confirming the divided internal opinions regarding future actions.

The Wall Street Journal (WSJ) interpreted this as a sign that the BOE is not yet confident that inflation has been sufficiently controlled. Bloomberg Economics stated, "This indicates progress in the fight against inflation, but it is not over yet," adding, "While no guidance was provided on the timing of the next cut, the tone of the minutes suggests no intention to lower rates again soon." The UK Consumer Price Index (CPI) inflation rate achieved the price stability target range of 2% for two consecutive months in May and June, but the possibility of a rebound cannot be ruled out. However, the market expects one or two additional cuts within the year.

On this day, the BOE lowered the base rate by 0.25 percentage points to 5.00% per annum. This is the first time in four years that the BOE has cut rates since lowering them to 0.10% in March 2020 to stimulate the economy at the start of the COVID-19 pandemic.

However, the market anticipates one or two more cuts within the year. James Smith, an economist at ING, said, "(The BOE) seems extremely reluctant to act rashly on the belief that the market may be at the start of a rapid rate-cutting cycle," and noted the possibility of one or two additional cuts by the end of the year.

The day before, Jerome Powell, Chair of the Fed, announced plans to cut rates in September. The European Central Bank (ECB), which preemptively cut rates in June ahead of the US and UK, is currently struggling with rising inflation. The preliminary July CPI for the Eurozone, released the day before, showed a 2.6% increase compared to the same month last year, with the monthly increase rising by 0.1 percentage points from the previous month. Sweden also cut rates in May but remains cautious about further moves.

On the other hand, the Bank of Canada, which was the first among the Group of Seven (G7) countries to start cutting rates, lowered rates twice in June and July this year. Tiff Macklem, Governor of the Bank of Canada, said that expectations for further rate cuts are "reasonable."

This content was produced with the assistance of AI translation services.