The Bank of England (BoE) On Thursday, announced another cut to its key interest rate after UK inflation dropped to its lowest level in three years, hinting at the possibility of additional reductions in the near future.
As anticipated, the central bank lowered its benchmark rate by 25 basis points to 4.75% during its regular policy meeting, marking the second cut since August.
The move comes as the BoE aims to keep inflation near its 2% target without tightening financial conditions too aggressively.
“We have been able to cut interest rates again,” said BoE Governor Andrew Bailey, referencing the fall in the UK’s annual inflation below target.
Britain’s Consumer Prices Index now stands at 1.7%, its lowest since 2021 and under the BoE’s 2% goal.
However, Bailey emphasized caution: “We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much.”
Bailey suggested that rates are likely to decrease gradually if economic conditions align with the bank’s outlook.
“But if the economy evolves as we expect, it’s likely that interest rates will continue to fall gradually from here,” he added.
This rate reduction aligns with broader trends among major central banks that have been scaling back interest rates this year after a series of hikes to curb soaring inflation driven by post-Covid economic adjustments and geopolitical tensions, such as Russia’s invasion of Ukraine.
Sweden’s central bank also reduced its borrowing rate by 0.5 basis points on Thursday, marking its largest cut in a decade, while Norway’s central bank held steady.
Meanwhile, the US Federal Reserve is expected to announce a 25-basis-point reduction later today.
The BoE’s policy shift follows last week’s budget announcement from Britain’s new Labour government, which outlined plans for tax increases and higher public borrowing.
In August, the BoE had reduced its key rate from a 16-year high of 5.25% after inflation returned to a more typical range.
It later opted against further cuts in September, with no meeting held in October.
The recent rate cut marks a notable change after a period of steady hikes.
The BoE raised borrowing costs 14 times between late 2021, when rates hit a record low of 0.1%, and mid-2023 in response to inflationary pressures.
AFP
