The Bank of England has reduced interest rates from 4% to 3.75%, marking its sixth decrease since the previous summer. This decision comes in light of a larger-than-anticipated decline in the consumer price index inflation rate released this week. Although inflation still exceeds the Bank’s 2% target, the drop to 3.2% influenced today’s outcome, with five out of the nine members of the monetary policy committee (MPC) voting in favor of a cut.
Governor Andrew Bailey, who had previously advocated for maintaining rates in November to gather more data on inflation, changed his stance this time around. He emphasized, «We’ve surpassed the recent peak in inflation, and it continues to decrease.» Consequently, interest rates have been lowered for the sixth time to 3.75%. This gradual decline in rates is expected to continue, with each subsequent cut posing a more challenging decision.
The rate cut will lead to immediate reductions in monthly repayments for individuals with floating rate mortgages. Additionally, some lenders are now offering fixed-rate deals below 3.5%. The Bank also offered a comprehensive evaluation of the economic consequences of the previous month’s budget, anticipating a half percentage point decrease in inflation next year due to measures aimed at reducing energy bills and freezing fuel duty.
This projection suggests that CPI inflation could approach the Bank’s 2% target as early as the second quarter of 2026, almost a year sooner than initially projected. However, the Bank also cautioned that economic growth remains feeble, anticipating that gross domestic product will stagnate in the fourth quarter of this year.
Despite the narrow margin of the decision, with four MPC members voting against the cut, some investors may view the Bank as finely balanced in its future decisions. Presently, investors anticipate another rate cut by the conclusion of next spring, with the possibility of further cuts thereafter. The final settlement of rates at 3.5%, 3.25%, or even lower is a topic of ongoing debate.
SOURCE