The Bank of England halts rate cuts and emphasizes a "slow and steady" approach.

• The Bank of England's Monetary Policy Committee voted 8 to 1 to maintain its current monetary policy, with one member advocating for a 0.25 percentage point reduction.
• The BOE delivered a "more decisive and more hawkish vote than expected" with the 8 to 1 vote split, supporting gilt yields and lifting sterling, according to Kyle Chapman, foreign exchange analyst at Ballinger Group.
• The central bank decided to reduce its bond holdings by £100 billion ($133 billion) over the next year through both active sales and the maturation of bonds.

The Bank of England decided to maintain interest rates unchanged despite the U.S. Federal Reserve's jumbo rate cut the previous day.

The Monetary Policy Committee voted 8 to 1 to maintain the current monetary policy, with the lone dissenter advocating for a 0.25 percentage point reduction.

The committee recommended a "gradual approach" to monetary easing, as services inflation remains "elevated." The U.K. economy, which has been sluggish this year, is expected to return to an underlying pace of around 0.3% per quarter in the second half, the committee stated.

The MPC evaluated a variety of data while making its rate decision, with headline inflation consistently remaining close to its 2% target, but price increases in services, which account for about 80% of the U.K. economy, rose to 5.6% in August. Additionally, wage growth in the U.K. decreased to a more than two-year low over the three months to July, but still remained relatively high at 5.1%.

The British pound strengthened against the U.S. dollar by 0.72% at $1.3306 at 12:10 p.m. London time Thursday, reaching its highest rate since March 2022, according to LSEG data.

The Stoxx 600 index in Europe rose by 1.45% on Thursday, while global equity markets gained.

The BOE's annual announcement on the pace of quantitative tightening (QT) was being monitored on Thursday. The central bank voted to reduce its stock of bonds, known as gilts, by £100 billion ($133 billion) over the next twelve months through active sales and the maturation of bonds.

Despite expectations for an acceleration of the program, the amount was in line with the prior period. The BOE's balance sheet increased during the pandemic as it aimed to stimulate the economy, but it later reversed course and implemented QT in February 2022.

The BOE's QT program, funded by taxpayers, is experiencing losses due to lower bond sales prices. Despite this, BOE Governor Andrew Bailey believes that conducting QT now is necessary to provide room for future quantitative easing or other operations.

Fed influence

Despite the U.S. Federal Reserve's 50 basis point rate cut on Wednesday, the BOE confirmed expectations for a hold at its September meeting, with many strategists anticipating a smaller 25 basis point cut.

Jerome Powell, the Fed Chair, stated in a news conference that the central bank aims to restore price stability without causing a significant increase in unemployment, which has often accompanied inflation. The recent U.S. labor market data has raised concerns about the slowdown in the world's largest economy.

Central bankers worldwide will evaluate the impact of the MPC's decision on global economic growth and financial conditions, which was likely finalized around midday Wednesday before the Fed's announcement.

The BOE delivered a "more decisive and more hawkish vote than expected" with the 8 to 1 vote split, supporting gilt yields and lifting sterling, according to Kyle Chapman, foreign exchange analyst at Ballinger Group.

"The Bank of England is taking a cautious approach to inflation due to its less favorable position compared to the Federal Reserve. However, this meeting seems to be a precursor to a cut in November, followed by a continued quarterly pace."

The Bank of England reduced its key rate from 5.25% to 5% in August in a close 5 to 4 vote, and was predicted to maintain them until its next meeting in November.

Sanjay Raja, the Chief U.K. Economist at Deutsche Bank, repeated his call for a rate cut this year, bringing the Bank Rate to 4.75%. He also predicted four quarter-point rate cuts through 2025. Raja stated, "We anticipate risks leaning towards a quicker easing of restrictive policy in the near-term."

According to Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management, the Bank of England is facing a dilemma because of its past decision, which has resulted in losses that no other central bank in the world has recorded.

The upcoming delivery of the U.K.'s first budget in October by the new Labour government may face challenges due to extending passive and active QT into the next year, according to Ducrozet, who stated on CNBC's "Street Signs Europe" that it would not simplify the government's job.

If you don't maintain independence from the government, you will suffer losses and have to manage them over time, he said. Keeping the rate of QT unchanged, as the BOE opted to do, provided a "middle ground," he added.