Bank of England cuts interest rates

7th Nov 2024 12:03

(Sharecast News) - The Bank of England trimmed interest rates on Thursday for the second time this year, as widely expected.

The rate-setting Monetary Policy Committee voted by eight to one to reduce the cost of borrowing by 25 basis points to 4.75%. External member Catherine Mann voted to leave rates unchanged.

It is the second cut so far this year, after the MPC trimmed rates for the first time in over four years in August.

Thursday's cut was widely anticipated after inflation dropped unexpectedly in September to 1.7%, the lowest rate for more than three years and below the BoE's 2% target.

However, conditions are now more uncertain looking forward.

As well as Wednesday's surprise victory for Donald Trump in the US presidential elections, last week chancellor Rachel Reeves unveiled large tax and spending increases in her first budget, which also included materially higher borrowing.

As a result, the Office for Budget Responsibility now expects both GDP and inflation to be higher in 2025.

In its accompanying comments, the MPC said it expected inflation to rise slightly over the next year, to around 2.75%, before falling back to target.

It continued: "If inflation remains low and stable, it's likely that we will reduce interest rates further. But we have to be careful not to cut interest rates too quickly or too much.

"High inflation has affected everyone, but it particularly hurts those who can least afford it."

The MPC also noted that it could not rule out further global shocks, including higher oil prices due to developments in the Middle East.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: "At a time of deep uncertainty about where inflation will head next, this decision will help provide some reassurance. But the waters ahead look murkier.

"Fresh nervousness has been sweeping bond markets amid fears that Trump's policies look set to increase inflationary pressures and swell the US deficit even further, with knock-on effects expected for the UK economy."

Alpesh Paleja, interim deputy chief economist at the CBI, said: "The MPC is treading an increasingly fine line. On the one hand, the CBI's surveys suggest that growth is already shifting down a gear. On the other, some measures of domestic price pressures - notably services inflation - remain stubbornly high.

"That line has become even finer after October's Budget. The loosening in fiscal policy is set to stoke inflation a little further, with the resulting short-term boost to demand not matched by a boost to supply potential."

The BoE started hiking rates in response to soaring inflation, which peaked at 11.2% in October, lifting them from 0.1% to 5.25%.