Bank of England Lowers Rates to 4.75%
The Bank of England lowered interest rates by 0.25% at today’s policy meeting, bringing the key rate down to 4.75%. The move was widely expected, as the markets had priced in the chance of this cut at around 95%. The Monetary Policy Committee voted 8-1 in favor of the rate cut, with one member voting to maintain rates at 5.0%. This breakdown within the vote was also expected.
This is the second time the central bank has lowered interest rates since it started its easing cycle in August 2024. The BoE held rates steady in September but had signaled that a rate cut was coming after inflation dropped sharply to 1.7% year-on-year in September. This was a milestone as it marked the first time in over three years that inflation had dropped to a level within the BoE’s target of 2%.
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UK Budget Could Slow BoE’s Rate Cut Plans
The BoE is expected to continue to cut rates gradually in modest increments of 25 basis points, but last week’s “tax and spend” UK budget could muddy the waters for BoE policymakers. The budget included tax hikes and increased government spending, which is expected to boost inflation and also kick-start the weak UK economy. However, this recipe of higher inflation and higher growth would complicate plans to lower rates, which could result in the BoE pausing at the December meeting and slowing the pace of rate cuts in 2025.
Governor Bailey struck an optimistic note at his follow-up press conference. Bailey said that disinflation was moving faster than expected, but services inflation was still too high to maintain inflation within the 2% target. Bailey reiterated that the BoE would take a gradual approach to cutting rates but didn’t provide any clues as to the timing of the next rate cut.
British Pound Climbs, Stock Market Shrugs After Rate Cut
The GBP/USD currency pair reacted positively to today’s rate cut. The Pound showed little movement ahead of the BoE announcement but posted strong gains in the aftermath of the meeting, climbing about 0.40% against the US Dollar. On Wednesday, the Pound fell 1.2% against the greenback as the US dollar soared following the news of Donald Trump’s election victory.
The FTSE 100, the benchmark UK stock index, is showing little response to the BoE’s rate cut. Currently, the FTSE 100 is down 10.90 points (0.14%) on the day and is at 8155.31.