BOE: Policy interest rates may remain unchanged this year

■ The UK's Consumer Price Index (CPI) increased for the tenth consecutive month in July, exceeding the Bank of England's target, raising concerns about a resurgence in inflation.  
■ While the market expects interest rates to remain steady this year, the pound's strength might continue to fluctuate amid the economic slowdown.  
 
    The UK Office for National Statistics reported a 3.8% year-on-year increase in the Consumer Price Index (CPI) in July, up from 3.6% the previous month, reaching its highest level since January 2024. Sharp increases in airfares, restaurant and hotel prices, along with rising food and non-alcoholic beverage costs, contributed to the overall rise. Although airfares are volatile, the year-on-year growth in service prices—an important indicator monitored by the Bank of England—increased from 4.7% to 5.0%, surpassing the Bank's 2.0% target for ten consecutive months. With the Treasury maintaining fiscal discipline and considering possible tax hikes in the Autumn Budget, concerns about inflation resurging have grown. 
 
    The Bank of England (BOE) cut interest rates by 0.25 percentage points at its Monetary Policy Committee (MPC) meeting on the 7th, bringing the policy rate to 4.00%. However, the vote was narrowly divided, with five members in favor and four against, and four members preferred to keep rates unchanged. Governor Bailey supported the rate cut but emphasized that "it's important not to cut interest rates sharply or significantly" and noted that "the rise in inflation is expected to end in the short term." After the July CPI results, short-term financial markets had almost fully priced in the MPC maintaining the rate on September 8th, with the chances of further 0.25 percentage point cuts in November and December slightly over 23% and 46%, respectively. 
 
    The July CPI exceeded market expectations, reducing expectations of a decline in UK bond yields. However, amid concerns that rising inflation could lead to an economic slowdown, the British pound fell to over $1.34 against the US dollar and below 197 yen against the Japanese yen. The UK's preliminary August composite PMI, due to be released tonight, is expected to be 51.6, above the boom-bust line of 50 for the third consecutive month. Markets are watching to see if this will support the pound's recent strong correction. From a technical perspective, the pound is currently in a tug-of-war with the 200-day moving average (US$1.3411, JPY 198.23), and is likely to remain in a nervous and volatile pattern.