The Bank of England has cut rates by 25bps, with two voting for a larger 50bps move, as policymakers contemplate an increasingly stagflationary outlook for the British economy.
Growth has been revised down, to only 0.75% in 2025, and inflation has been revised up, with a peak of 3.7% expected this year.
This monetary policy report is a damning assessment of the economic impact of Reeves’ fiscal choices, and it will likely fuel calls for her exit.
#The government’s overarching goal is growth, and the UK central bank is telling it that Britain won’t eke out even a 1% expansion this year.
The biggest surprise of all is that Catherine Mann – the arch-hawk that everyone had expected to vote for a hold – voted for a 50bps move. She had always held the stance that it was better to err strongly on the side of caution while inflationary persistence risks were elevated, because rates could be cut rapidly when it was clear that the economy would suffer. Is she ringing the alarm bell on growth here?
The fact that inflation is expected to rise closer to 4% than to 2% this year is a clear signal that confidence about the subsidence of underlying pressures, which the bank has solely been focused on, has increased quite markedly.
It is a familiar theme among central banks staring down the barrel of some highly volatile US economic policy this year, but there is little in the way of forward guidance. The market looks to be sticking to expectations for mostly a once-per-quarter pace, but there is an extra move now being priced in before the end of the year.
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