The Bank of England is expected to maintain its current interest rates despite the recent rate cut by the U.S. Federal Reserve, marking the first cut in over four years. The decision is anticipated due to concerns over inflation, particularly in the services sector, which plays a significant role in the British economy.
Recent data revealed that the UK's inflation rate held steady at 2.2% in August, with varying price movements in sectors such as airfares, fuel costs, and hospitality expenses. This slight increase keeps inflation slightly above the Bank of England's target of 2% for the second consecutive month.
Following the onset of the pandemic, central banks globally raised interest rates to combat rising prices caused by supply chain disruptions and geopolitical events like the Russia-Ukraine conflict. However, as inflation rates have moderated in recent months, central banks have started to lower interest rates.
The Federal Reserve recently reduced its main interest rate by half a percentage point to approximately 4.8%, signaling potential further cuts in the coming months. The Bank of England is also expected to follow suit and decrease borrowing costs at its November meeting, especially after reviewing the government's budget on October 30.
The UK government, facing a significant budget deficit of 22 billion pounds ($29 billion), is considering tax increases and spending cuts to address the financial gap. These measures could impact the short-term economic outlook and exert downward pressure on inflation.
