The Bank of England made a significant move by cutting interest rates by a quarter point on Thursday, in response to the United Kingdom's inflation rate dropping to a three-year low in September. This decision brought the UK's benchmark interest rate down to 4.75% from 5%, marking the first rate cut since the beginning of the pandemic.
Bank of England Governor Andrew Bailey expressed that the disinflationary process has been progressing well and at a faster pace than anticipated. Factors contributing to this included lower-than-expected oil and gas prices, as well as reduced food, core goods, and services price inflation.
In September, UK inflation decelerated to 1.7% from 2.2% in August, falling below the Bank of England's 2% target and reaching its lowest level since April 2021. Despite this positive development, Bailey emphasized the need for interest rates to remain restrictive for an extended period until inflation risks, such as robust wage growth and certain service prices, have further diminished.
The Bank of England's stance is cautious, with a commitment to ensuring that inflation remains low. As a result, the bank stated its intention not to reduce rates too rapidly or by too much, underscoring the importance of maintaining stability in the economy.
