Bank Of England Cuts Rate By 25 Bps, Sees Modest Growth In Q1

(RTTNews) - The Bank of England lowered its key interest rate by a quarter-point as widely expected on Thursday but two policymakers sought a bigger reduction citing the sluggish U.K. economy and the heightening uncertainty over trade tariffs.

The Monetary Policy Committee, led by Governor Andrew Bailey, voted 7-2 to reduce the benchmark bank rate to 4.50 percent from 4.75 percent.

The decision to reduce the rate to the lowest since June 2023 came in line with expectations. Previously, the BoE had reduced the rate by 25 basis points each in August and November last year.

MPC members Swati Dhingra and Catherine Mann called for a bigger rate cut of half percentage point.

The MPC judged that there has been sufficient progress on disinflation in domestic prices and wages to reduce the bank rate to 4.5 percent at this meeting.

Governor Bailey said the MPC will decide carefully by how much and when it can cut interest rates.

The rate-setting body agreed that a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate.

"Monetary policy would need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2 percent target in the medium term had dissipated further," the bank said.

The BoE staff estimated that the economy contracted 0.1 percent in the fourth quarter of 2024 and projected GDP to grow 0.1 percent in the first quarter of 2025.

The bank forecast inflation to rise quite sharply in the near term, to 3.7 percent in the third quarter of 2025, owing in part to energy prices before easing again. Inflation is expected to fall back again to the 2 percent target after that.

ING economist James Smith expects the next cut in May, with further moves in August and November.