The Bank of England (BoE) cut interest rates for the second time since 2020, reducing the rate from 5% to 4.75%. The Monetary Policy Committee (MPC) voted 8-1 in favor of the cut, with Catherine Mann dissenting.
BoE Governor Andrew Bailey emphasized the need to control inflation, stating that future rate cuts would be gradual to avoid destabilizing the economy. He indicated that additional rate reductions could continue if the economic landscape aligns with BoE projections.
The rate cut follows Finance Minister Rachel Reeves' budget, which introduced tax hikes, increased public spending, and expanded borrowing. The BoE projects these measures could boost the UK economy by 0.75% next year but offer limited long-term growth improvement. The fiscal changes are also expected to add 0.5 percentage points to inflation at its peak, delaying the inflation rate's return to the BoE's 2% target by about a year.
The BoE's approach contrasts with expectations around the European Central Bank, which some investors predict will adopt a more aggressive rate-cutting path. However, financial markets have scaled back expectations for future BoE rate cuts, with forecasts for 2025 now reduced to two or three adjustments, down from four projected prior to the budget. The BoE's statement avoided mention of broader global political factors, such as Donald Trump's U.S. election victory, which had influenced market bets on the U.S. Federal Reserve's approach to rate cuts.