The Bank of England has cut its main interest rate to 4.50%, taking it to its lowest level since mid-2023, in an effort to boost the struggling British economy. The decision was widely expected and marks the third reduction in six months.
However, the real surprise came from the bank’s revised growth projection, which now expects the UK economy to grow by only 0.75% this year, down from its previous forecast of 1.5%. This downgrade is likely to be a blow to the new Labour government, which has made economic growth its top priority.
Treasury chief Rachel Reeves welcomed the interest rate cut but expressed her concerns over the reduced growth projection. She vowed to take “faster action” to kickstart economic growth, although it remains to be seen whether the Bank of England will contribute further by cutting rates.
Financial markets are uncertain about the next move, with inflation forecast to rise to 3.7% in the first half of the year and potentially affect mortgage rates. The Bank of England’s Governor Andrew Bailey emphasized the importance of monitoring global developments and taking a cautious approach to future rate cuts.
Two panel members voted for an even bigger reduction of half a percentage point to 4.25%, highlighting concerns about the economic outlook. While the bank does not directly target growth, lower growth can help keep inflation in check.
The decision is a response to inflation, which has declined significantly since multidecade highs but remains above its target rate of 2%. Central banks have started cutting interest rates as inflation rates decline, and it’s unclear whether rates will fall back to super-low levels seen during the pandemic.
Source: https://apnews.com/article/britain-economy-interest-rates-inflation-bank-england-cecd754e6ff0f85dd33dba65813584eb