The Bank of England expects inflation to rise by 0.5 percentage points, more than previously expected, to a high of around 2.75% in 2025 before retreating to its 2% target. Meanwhile, growth is expected to pick up around 0.75% within a year.
The Bank of England decided to cut interest rates by 25 basis points last Thursday, in a near-unanimous decision, which represents an easing of pressure on mortgage holders, but it also raised its inflation forecasts after the Labor government’s budget and global uncertainty, which likely determines the policy easing. in the future.
The Bank of England’s Monetary Policy Committee voted 8-1 in favor of the decision to reduce the bank’s key interest rate to 4.75%. This represents the second such cut by the central bank this year, after it began its easing cycle in August.
Policymakers cited continued inflation easing as a factor influencing their decision (slightly below the 2% target) but noted that the government’s fiscal plan had increased their forecasts for growth and inflation.
Financial markets were expecting a 97% chance of a quarter-point cut at the November meeting, even as analysts warned that subsequent cuts could be delayed as a result of the government’s tax and spending budget.
“Although interest rates should fall further, upward pressures on inflation from the Budget and rising global risks, including potential new US tariffs, said Suren Thero, director of economics at the Institute of Chartered Accountants in England and Wales, in a note following the announcement. “It may mean that politics has become more modest than many expected.”
Policymakers signaled a “gradual approach” to cuts after keeping interest rates steady at their meeting in September. However, economists raised their forecasts at a faster pace of easing after a sharp drop in inflation to 1.7% and a decline in wage growth ahead of the budget.
These expectations were later tempered after UK Finance Minister Rachel Reeves announced £40 billion (US$51.5 billion) in tax rises and a change in the UK’s debt rules, which the Office for Budget Responsibility (OBR) warned could push growth and inflation into the UK. Short term.
