Bank expected to keep interest rates on hold

The Bank of England is expected to keep interest rates at 5 per cent until ratesetters can see signs that inflation risks have been quashed.
Inflation held steady at 2.2 per cent in August but sped up in the services sector, which is closely watched by the Bank’s nine-strong monetary policy committee (MPC).
Economists and traders expect that the jump in services inflation from 5.2 per cent to 5.6 per cent last month will mean that the Bank will hold rates, despite the US Federal Reserve’s half-point cut last night.
Jerome Powell, the Federal Reserve chairman, said the cut reflected “growing confidence” about the outlook for inflation.
Andrew Bailey, the Bank governor, said the MPC had been able to cut interest rates from 5.25 per cent in August because inflationary pressures had “eased enough”. He emphasised, however, that policymakers “need to be careful not to cut interest rates too quickly or by too much”.
The Bank of England expects inflation to remain above its 2 per cent target for a while. Huw Pill, the Bank’s chief economist, said last month that the UK was “not [yet] out of the woods” from an upward surge in inflation. Economists have forecast that interest rates in the UK will fall more slowly than in the United States and the eurozone.
The decision comes at midday. The focus is likely to be on what the Bank says about the pace it plans to sell bonds back to financial markets over the next 12 months, a process known as “quantitative tightening”, which is shrinking the balance sheet amassed during the financial crisis and pandemic when the Bank bought billions of government bonds.
The quantitative tightening decision could have sizeable consequences for Labour’s first budget. Many economists expect the bank to set out plans to sell £120 billion of bonds, up from £100 billion this year. The New Economics Foundation believes this would result in a loss of £28 billion.