The Bank of England has voted to decrease the base rate by 0.25%, lowering from 5.00% to 4.75%.
This move followed the MPC’s decision to hold the rate at 5.00% in September, and marked the first time the rate has fallen below 5.00% since the bank chose to raise interest rates above the 5.00% threshold in June 2023.
The decision aimed to support economic growth amid signs of slowing inflation, which recently eased below the BoE’s target of 2% to 1.7%, down from a peak of 11.1% in October 2022.
Reaction:
Nicholas Mendes, mortgage technical manager and head of marketing at John Charcol:
“Today’s decision to reduce the Bank Rate by 0.25% came as anticipated, despite last week’s eventful Budget, which has shifted forecasts for monetary policy as we head into 2025.
“This is the second rate cut in the UK’s loosening cycle, following similar moves by other European central banks, including the ECB, SNB, and Sweden’s Riksbank, which have already made multiple reductions this year.
“Labour’s Budget last Wednesday introduced various tax increases, but bond markets reacted negatively when Government debt levels were revealed the next day.
“Since October 30th, gilt yields have risen sharply, increasing UK Government borrowing costs.
“Markets are now concerned that increased government spending could add inflationary pressure, potentially prompting the Bank of England to slow the pace of future rate cuts.
ADVERTISEMENT
“In September, the Bank suggested a ‘gradual approach’ to policy easing.
“Since then, we’ve seen both the 30th October Budget and a lower-than-expected inflation reading for September, reported on 16th October.
“That October release showed the Consumer Prices Index (CPI) rising 1.7% year-on-year, below the 1.9% forecast.
“The next CPI data, due on 20th November, is expected to show a 2.2% increase.
“The Budget’s economic forecasts from the Office for Budget Responsibility stood out for inflation, with the 2025 CPI forecast now at 2.6%, up from 1.5% just eight months ago.
“Inflation is expected to remain above target through 2026–2028, driven by wage growth and fiscal policy.
“Though the Bank of England operates independently from the Government, fiscal plans will inevitably influence its outlook on growth and inflation.
“Today’s rate decision comes with a quarterly monetary policy report, providing deeper insights into how the Government’s fiscal stance may shape the economy.”
Article From The Intermediary by Jessica O'Connor
Kommentare