While last month did see the Bank of England (BoE) maintain interest rates at their current level of 5%, the Bank’s Governor Andrew Bailey also stated his optimism that rates are now on a downward path. At its latest meeting, which concluded on 18 September, the BoE’s Monetary Policy Committee (MPC) voted by an 8–1 majority to leave Bank Rate on hold. The one dissenting voice voted for what would have been a second successive quarter-point cut following the committee’s decision to reduce rates in early August, the first reduction since 2020.

The minutes to the meeting, however, did strike a fairly cautious note. They stated that the decision to hold rates was ‘guided by the need to squeeze persistent inflationary pressures’ out of the economy and that monetary policy would need to ‘remain restrictive’ until the risks to inflation have ‘dissipated further.’ On the same day the MPC meeting ended, ONS published the latest inflation data, which revealed that August’s headline annual rate was unchanged at 2.2%. Although this did mean the rate therefore remained marginally ahead of the BoE’s 2% target level, the figure was exactly in line with analysts’ expectations.

Speaking a few days after the inflation figures were released, the BoE Governor said he was “very encouraged” by the downward path of inflation over the past two years and that the Bank should be able to reduce rates as it becomes more confident inflation will remain close to target. Mr Bailey concluded, “I do think the path for interest rates will be downwards, gradually.”

A Reuters poll released last month also revealed that most economists expect one more rate cut this year, with a large majority predicting the BoE will sanction a reduction after the MPC’s next meeting, which is scheduled for 7 November.