The Bank of England has cut interest rates by another quarter percentage point, bringing down the cost of borrowing to 4.5%.
And in a sign that households can expect more cuts in the months to come, two members of the Bank‘s Monetary Policy Committee said they would have preferred to reduce rates even more, by a full half percentage point.
Money blog: Is UK now on new interest rate path?
However, the Bank slashed its forecast for economic growth, forecasting that the economy will skirt clear of a formal recession only by the narrowest margin in the coming months, and downgraded its estimate of the economy’s ability to generate income. And in a further blow to the chancellor, it said her latest growth plans, unveiled in a speech last week, will add nothing to gross domestic product growth in its forecast horizon.
The Bank’s governor, Andrew Bailey, said: “It will be welcome news that we have been able to cut interest rates again today. We’ll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further.
“Low and stable inflation is the foundation of a healthy economy and it’s the Bank of England’s job to ensure that.”
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The Bank’s forecasts seem to indicate that there will be at least two further rate cuts in the coming years and that that will be enough to bring inflation down towards its 2% target. However, investors are betting on more cuts.
The Monetary Policy Report and Bank forecasts released alongside the decision today signal that the economy is due to have another few years of weakness. They cut the forecast for economic growth this year, next year and the following year, as well as raising the inflation forecast. The Bank also said that the economy’s potential growth rate had dropped, down from 1.5% this time last year to 0.75% at the moment.
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It said that while it expected last October’s budget to boost economic growth by 0.75%, thanks largely to greater public investment, it also expected the National Insurance rise to weigh down on activity, in particular by pulling down employment.
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It also warned that the tariffs threatened by Donald Trump on various economies posed a risk for economic growth in the coming years, though it has yet to incorporate them into its models.
