Commuters will pass the Bank of England (BOE) in the city of London, UK on Monday, September 16th, 2024.
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Further cuts have come as the Bank of England made its first interest rate cut of the year on Thursday, downgrading its UK growth forecast for 2025.
The central bank cut benchmark rates by 25 basis points to 4.5%, with the majority of its seven members supporting the vote of nine monetary policy committees. Two of the MPC members voted for a big cut of 0.5% points.
Bank of England governor Andrew Bailey told reporters that the central bank is hoping for further interest rate cuts this year.
“We expect that as the firing process continues, we can further reduce bank fees. But we need to determine the meeting by meetings, how far and how quickly we meet.”
“We live in an uncertain world, and there are bumps in the road ahead,” he said at a press conference.
Economists were widely hoping that central banks would cut rates as UK growth data became inactive.
Data released in December shows that the economy was flatlined in the third quarter, but the latest monthly GDP reading saw the economy grow by just 0.1% in November after shrinking by 0.1% in October. It was shown. The weak data in retail data from last month was also added to the expectations that BOE would cut fees. BOE on Thursday halved growth forecasts that the UK expects to see from 1.5% to 0.75% in 2025.
Meanwhile, UK inflation fell to a lower than expected 2.5% in December, further lowering core price growth. It also raised expectations that central bank policymakers will pilot their first trim in 2025. Central banks' inflation target is 2%. .
Bo said In a statement As the previous external shocks have receved, “there has been substantial advances in discovery over the past two years.”
Nevertheless, he emphasized that “a progressive and careful approach to further withdrawal of monetary policy constraints is appropriate.”
The bus will pass through the London market outside the royal exchange near the Bank of England on July 2, 2021 in London, England.
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Members of the BOE Monetary Policy Committee plan to impose tariffs on US President Donald Trump's closest trading partners in America, and the need to increase growth and the inflation risk posed by the new trade war. It is necessary to determine how to balance the same measures and threaten to apply in the EU and the UK
The bank's Monetary Policy Committee said “will continue to closely monitor the risks of sustainable inflation and the evolving evidence reveal the balance between aggregate and demand in the economy.”
“Monetary policy must maintain restrictions for a long enough time until further risks to inflation return sustainable to a 2% target over the medium term are dissipated,” he concluded.
In response to BOE's interest rate decision, British Prime Minister Rachel Reeves said in a statement that BOE's interest rate cuts are “welcome news,” but she “is not satisfied with the growth rate yet.”
The Prime Minister argued that the Treasury plan to “start economic growth” would work to “put more money into workers' pockets,” and the government “takes blockers and forces Britain to rebuild, and He said he has been committed to ripping down necessary regulatory barriers and investing in our country rebuilding roads, rail and critical infrastructure.”
What's coming next?
Kallum Pickering, the chief economist at Peel Hunt, mentioned earlier this week, said that economists are wary of central bank policymakers being “engulfed in a trade war and weak domestic momentum.” is pondering the interest rate trajectory for 2025. .
“The key question facing policymakers is whether they will show that another cut may come soon in March, or whether they will let them know that they will maintain the course set last year. Monday.
The basic incident for Peel Hunt is that BoE maintains its pace per quarter, and that banks wait until their May meeting before following up on the second trim of the year.
“However, risks are skewed as policymakers are willing to respond more vigorously to economic debilitating. So, it immediately hints at another cut when the March 20th meeting already exists. I'll do it,” Pickering said.
BOE's first trim of the year comes after tough months for Reeves, who has been facing sustained pressure since announcing the Treasury Department Last fall, the fiscal plan aimed to increase the tax burden on UK businesses. The package attracted widespread criticism from industry leaders about its potential impact on investment, employment and economic growth.
Reeves defended the plan, saying strict measures are needed to achieve financial stability and “there is no option.” She also said that the UK's Industrial Federation “has not been getting more borrowing or taxes back” last November, saying that tax increases on businesses will be one-off.
Some economists believe central banks can take a more gradual approach, given the risk of inflation poses from potential Trump tariffs and the financial position taken by the UK government.
“Despite recent weak news about its activities and uncertainty about the global outlook due to Trump's US import duties, stronger news about domestic price pressures has led the Bank of England to lower interest rates perhaps only gradually. It means continuing,” he said in a memo on Wednesday in British economist Ashley Webb Capital Economics.
“However, CPI inflation could rebound from 2.5% in December last year to around 3.0% later this year, but if it drops to below 2.0% next year, banks will cut interest rates by early 2026. I think it encourages us to do so, not 3.75-4.00%, as investors expect,” he pointed out.
