The Bank of England kept interest rates unchanged as scheduled and remains cautious about future rate cuts.

Due to escalating concerns about rising inflation, the Bank of England on Thursday kept interest rates unchanged at 4% and maintained a cautious stance on future rate cuts. On Thursday, the Bank of England's Monetary Policy Committee voted 7-2 in favor of keeping rates unchanged, with doves Swati Dhingra and Alan Taylor supporting a 25 basis point rate cut. This rate decision and the voting outcome were both in line with economists' expectations. The Bank of England warned in its guidance that future rate cuts will be "gradual and cautious," and will depend on the extent to which potential easing of inflationary pressures occurs. The committee believes that "the upside risks to medium-term inflation pressure remain significant." Following the rate decision announcement, UK bond prices rose slightly, with the yield on the 10-year UK government bond falling 1 basis point to 4.62%. The pound continued its upward trend against the US dollar, rising 0.1% to 1.364. Bank of England Governor Andrew Bailey said in a statement, "Although we expect inflation to return to the 2% target level, we have not fully escaped the dilemma." The Bank of England stated that progress in easing wage pressures is greater than controlling prices, but recent increases in inflation may bring greater pressure on both. The Bank of England's language has reinforced a more cautious tone since the last meeting in August, leading traders to reduce expectations for future rate cuts. Prior to this, official data released this week showed that inflation had almost doubled the Bank of England's 2% target, and signs of stabilization had appeared in the job market. Policymakers also voted to slow the pace of the Bank of England's bond reduction. Previously, volatility in the UK bond market had led to borrowing costs reaching their highest level in nearly 30 years. Starting in October, the Bank of England's balance sheet will shrink by 70 billion per year (approximately $95 billion), with the current reduction rate of 100 billion per year, and active sales of bonds will no longer focus on long-term government bonds. The Bank of England's actions contrast sharply with the Federal Reserve. The Fed lowered rates on Wednesday and is expected to take further easing measures. Traders anticipated that the Bank of England would abandon the loose pace of cutting rates by 25 basis points each time, and ahead of Thursday's rate decision announcement, the market had already fully absorbed the expectation of only one rate cut by the end of 2026. There is also serious disagreement within the Bank of England on how to address the new round of inflation caused by energy and food spending. Currently, inflation expectations among UK households are rising, and some officials are concerned that this may trigger a feedback loop, pushing wages up and further driving prices higher. The Bank of England expects inflation to reach 4% this month, a data that will be released approximately two weeks before the Monetary Policy Committee meeting in November opens. Given the importance of food to consumers, officials are particularly concerned about the spiral-like rise in food prices. They had previously pointed out that cooling labor markets and economic downturns were strong evidence that future price pressures are expected to ease. However, recent data shows that the job market is stabilizing after the impact of the Chancellor of the Exchequer Rachel Reeves raising employer wage taxes and minimum wage standards in April. Economic growth is also better than expected, with UK growth in the first half of the year outpacing other G7 member countries. The Bank of England currently expects GDP growth in the third quarter to be 0.4%, up from the previous forecast of 0.3%.