The Bank of England has cut interest rates by 25 basis points to 4.75%, marking its second reduction this year as inflationary pressures begin to ease and economic data signals a cooling in wage growth.
The nine-member Monetary Policy Committee (MPC) voted in favour of the reduction, following a steady trend in economic forecasts that suggest a potential downturn in inflationary pressures.
The rate cut comes despite new fiscal policies introduced in Chancellor Rachel Reeves’s recent budget, which are expected to increase costs for UK businesses, including a 1.2% rise in employers’ National Insurance contributions from April. Stuart Douglas, Director of Capital Markets at Centrus, noted, “Though the interest rate cut was expected, concerns linger about inflationary pressures stemming from both fiscal policy changes and the impact of Donald Trump’s US election victory on global trade.”
Trump’s proposed tariffs on imports have sparked fears of a trade war that could lead to higher costs for UK businesses and consumers, impacting both inflation and growth. Economists at the National Institute of Economic and Social Research warned that these factors might prompt the Bank of England to ease policy more cautiously.
At the Bank’s last meeting in September, MPC members took a cautious stance, keeping rates unchanged as some members, including Chief Economist Huw Pill, voiced concerns over high services inflation and wage growth. With regular wage growth at its weakest in two years, now down to 4.9%, and headline inflation dropping from 2.2% in August to 1.7% in September, the Bank’s decision to lower rates reflects shifting economic conditions.
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