LONDON — The Bank of England cut interest rates by 25 basis points Thursday, even as Labour’s bumper budget announcement muddies the outlook for future policy easing.
The BOE’s Monetary Policy Committee voted 8-1 in favour of the decision to bring the bank’s key rate to 4.75%. It marks the central bank’s second such reduction this year, after it began its easing cycle in August.
Policymakers pointed to a continued easing of inflation in their decision, adding that further cuts could be expected if price growth remains stable.
However, the bank said it now expects inflation to tick up slightly in 2025, rising to around 2.75%, before falling back to its 2% target.
“Based on the evolving evidence, a gradual approach to removing policy restraint remains appropriate,” BOE Governor Andrew Bailey said, speaking at a press conference shortly after the rate decision.
“Monetary policy will need to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target over the medium term have dissipated further,” he said.
Money markets had been pricing in a 97% chance of the quarter-point trim at the November meeting, even as analysts have warned that subsequent cuts could be delayed as a result of the government’s tax-and-spend budget.
Investors will now be listening closely to comments from Governor Andrew Bailey and his colleagues about their latest outlook for the economy in the wake of the budget and the U.S. presidential election.
“Prospects for stronger 2025 growth are likely to reduce the urgency for sequential cuts in the near term,” Goldman Sachs said in a note last Thursday.
Policymakers signaled a “gradual approach” to cuts after holding rates steady at their September meeting. However, economists had upped their expectations of a faster pace of easing following a sharp fall in inflation to 1.7% and a drop off in wage growth prior to the budget.
Those expectations were later dampened after U.K. Finance Minister Rachel Reeves announced £40 billion ($51.41 billion) in tax hikes and a change to the U.K.’s debt rules, which the Office for Budget Responsibility (OBR) warned could push up near-term growth and inflation.
