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Bank of England cuts rates to 4.5%, sees higher inflation, weaker growth

2025-02-06 00:00:00.0 商业标准报-经济和政策原网页

The Bank of England lowered interest rates by a quarter of a percentage point on Thursday, judging a sharp upward revision to its inflation forecasts for this year will prove temporary, while two officials called for a bigger rate cut against a backdrop of weaker growth.

The cut to 4.5 per cent was in line with economists' expectations in a Reuters poll, but the two dissenting votes from external members Catherine Mann and Swati Dhingra in favour of a bigger rate cut to 4.25 per cent were not.

Mann until now had generally opposed rate cuts, though she had previously said that a switch to more active policy loosening would be needed at some point.

Bank of England Governor Andrew Bailey said the BoE would be "monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further" - a shift from December's language where he spoke only of a "gradual" approach.

Hit by worries about finance minister Rachel Reeves' tax increases for employers, the risk of a global trade war led by US President Donald Trump and rising costs, the British economy has barely grown since mid-2024. The BoE warned that it likely contracted by 0.1 per cent in the fourth quarter.

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Thursday's rate cut is only the third since the BoE started lowering borrowing costs from a 14-year high in August and leaves British rates among the highest for advanced economies and just above the US Federal Reserve's range of 4.25-4.5 per cent.

Last month, economists polled by Reuters had forecast the BoE would make four quarter-point rate cuts this year, lowering its main interest rate to 3.75 per cent, while more recently markets saw cuts to 4 per cent as more likely.

Minutes of February's decision showed some policymakers wanted a "cautious" approach to future rate cuts because of weak productivity that could push up inflation, while others saw less of a risk of persistent above-target inflation but said the BoE still needed to be "careful".

The outlook for Britain's economy is worse than when the BoE published its last full set of forecasts in November.

Inflation - already above target at 2.5 per cent - is expected to peak at around 3.7 per cent in the third quarter of this year due to higher energy prices and expected increases in regulated water bills and bus fares, up from a previous forecast peak of 2.8 per cent.

The BoE does not expect inflation to fall back to its 2 per cent target until the final quarter of 2027, six months later than it had forecast before.

The central bank also halved its forecast for growth this year to 0.75 per cent - reflecting weak business and consumer sentiment and more sluggish productivity growth - although forecasts for annual growth in 2026 and 2027 were revised fractionally higher to 1.5 per cent from 1.25 per cent.

The BoE said it was unclear exactly how any future US tariffs would affect inflation in Britain, but said higher global tariffs were likely to cause slower growth, even if Britain was not specifically targeted.

These forecasts were based on market expectations for a slower pace of rate cuts than in November, with interest rates dropping to around 4.25 per cent by the end of this year versus about 3.75 per cent expected before.

The two policymakers who voted for an immediate cut in rates to 4.25 per cent had different reasoning. The minutes did not say which view was linked to Mann or Dhingra, although one of the policymakers was described as supporting an "activist" approach, the language previously used by Mann.

For the "activist" policymaker, voting for a bigger rate cut would give a clearer signal to markets, although she expected monetary policy would still need to stay restrictive for some time.

For the other policymaker, weak growth was likely to ensure that inflation would return to target in the medium term.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)