The Bank of England Monetary Policy Committee (MPC) has voted to cut interest rates by 0.25% to 4.5%.
The MPC voted 7 to 2 in favour of the cut, with two dissenting members preferring to cut rates by 0.5% to 4.25%.
Higher global energy prices are expected to push up inflation to 3.7% in Q3 2025, despite ongoing decline in domestic inflationary pressure. The market was expecting rates to fall to 4.5% prior to the announcement.
Nicholas Hyett, Investment Manager at Wealth Club, said, “Recent economic data points to a slowdown in the UK economy – GDP came in lower than expected, inflation has fallen and unemployment has ticked up.
“The outlook is gloomy too, with many companies thought to be considering job cuts before a rise in the living wage and higher national insurance contributions in April.
Against that backdrop the Bank’s decision to cut rates is no surprise and was widely expected. Rate-setters, and the government, will be hoping a 0.25% cut provides the post January pick-me-up the economy needs – though some MPC members voted for a more radical reduction.
However, the real risks in the future are largely unknown. Will Trump’s trade war rock the global economy? Will the UK become a tariff target?
“How many jobs are at risk from rising labour costs? Will the Chancellor hike taxes again in the spring? With all those unknowable risks out there, this rate cut could be seen as much as a shot in the dark than a shot in the arm.”
Alpesh Paleja, Deputy Chief Economist, CBI, said, “Today’s cut to interest rates was in line with our expectations and reinforces our view of a gradual loosening in monetary policy over this year.
“However, the Monetary Policy Committee are increasingly having to balance conflicting objectives. The CBI’s surveys show that business’ growth and hiring expectations have weakened. But inflation expectations are picking up, exacerbated by the rise in employment costs arising from October’s Budget.
“Therefore, while we still expect a few more rate cuts this year, risks to this forecast are now balanced in either direction. Incoming data over the coming months will be key in determining how the MPC will move next.”
Leave a Comment