Refusal to follow the Fed! The Bank of England remains unchanged as scheduled, vows to gradually lower interest rates.

On Thursday night Beijing time, the Bank of England's Monetary Policy Committee voted 8-1 to keep the interest rate unchanged at 5%, in sharp contrast to the Federal Reserve's 50 basis point rate cut on Wednesday. While this decision was in line with market expectations, it still pushed the pound to its highest level against the US dollar in over two years. The Bank of England warned that it would not rush to ease monetary policy, as it still needs to see further signs of inflation pressures easing. Bank of England Governor Bailey said in a statement, "Over time, we should be able to gradually lower interest rates." He emphasized that this path will depend on whether price pressures continue to ease. "Maintaining low inflation is crucial, so we need to be careful not to lower rates too quickly or by too much." Rate cut expectations cool off The cautious outlook of the Bank of England on future easing prospects may dampen expectations in the market for a faster pace of rate cuts later this year. Prior to the meeting, investors had increased bets on the Bank of England continuing its rate cuts since November, but policymakers did not explicitly support a rate cut at the next meeting. After the rate decision was announced, the money market reduced its bets on the extent of rate cuts by the Bank of England this year, expecting a cut of 41 basis points by December, down from the previous expectation of 50 basis points. The pound rose by 0.8%, surpassing 1.33 for the first time since March 2022. UK government bonds fell, with the 10-year benchmark yield rising by 3 basis points to 3.88%, and the 2-year benchmark yield rising by 2 basis points to 3.92%. Following the rate decision, the pound against the US dollar rose. Suva International's Head of Macro Strategy, Jordan Rochester, said, "All this suggests that rate cuts can only be gradual on a quarterly basis at most." He expects the pound against the US dollar to continue to rise, potentially breaking 1.34 in early October and 1.40 by the end of next year. Dean Turner, Chief European Economist at UBS Global Wealth Management, said, "The decision to keep the benchmark interest rate unchanged aligns with our long-standing view that the Bank of England will be cautious at the beginning of the rate cutting cycle. Given that the economy has shown little pressure signs, policymakers have time." He expects a second rate cut of the year in November. The Bank cut rates by 25 basis points in August. The vote results indicate that despite recent data showing inflation below expectations and a weak UK economic recovery, officials still do not believe that the threat of consumer prices has been sufficiently contained. Swati Dhingra, the most dovish member of the Bank of England's Monetary Policy Committee, was the only one to support an immediate 25 basis point rate cut. The Bank of England also maintained the pace of reducing its balance sheet by 100 billion ($132 billion) annually. This means that the amount of government bonds actively sold by the Bank of England within 12 months starting from October will drop significantly from the current 50 billion to around 13 billion. This outcome is in line with market and economist expectations. Officials stated that the "threshold" for adjusting the plan to reduce the stock of UK government bonds during this period is quite high. Call for patience Last month, the Bank of England voted 5-4 to cut rates for the first time in over four years. Chief Economist Huw Pill belongs to the hawkish camp that opposed the rate cut. However, the policy guidance in Thursday's meeting minutes added warning language, stating that officials will gradually unwind their most aggressive tightening policies in decades. The meeting minutes stated, "In the absence of material developments, the gradual relaxation of policy constraints remains appropriate." The guidance reiterated officials' preference for making decisions at each meeting and the need for policies to remain restrictive for a "sufficiently long period." Despite recent data showing the threat from consumer prices receding, the Bank of England has pledged to stay patient. Data released on Wednesday showed that inflation in August remained at 2.2%, below the Bank of England's expected 2.4%. Wage growth continues to slow, the economy has cooled down, and Gross Domestic Product (GDP) has stagnated for three out of the past four months. The Bank of England stated that it expects output growth in the third quarter to slow to 0.3%, slightly lower than the 0.4% forecast in August. It is projected that inflation will rise to 2.5% by the end of the year, slightly lower than the previous forecast of 2.8%. It is worth noting that several central banks announced interest rate decisions this week. Apart from the Federal Reserve's 50 basis point rate cut, the Central Bank of Brazil raised borrowing costs for the first time since 2022, while Norwegian officials stated that they would not ease policy before 2025. Later on Thursday, the South African Reserve Bank may announce a rate cut, while the Bank of Japan is expected to keep rates unchanged at 0.25% on Friday.