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Bank of England Cuts Rates by 25 Basis Points as Expected
TOPICSTags: Bailey, Central Bank, GBPUSD, mortgage rates, MPC, Sterling
Cautious Tone from Bank of England Governor Andrew Bailey
On Thursday, the Bank of England reduced interest rates by 25 basis points to 4.75%, as anticipated. This marks the second rate cut since 2020, with Governor Andrew Bailey signalling that any future rate reductions will likely be gradual.
The Monetary Policy Committee (MPC) voted 8-1 in favour of the rate cut, reducing the rate from 5% to 4.75%, surpassing expectations of a 7-2 vote according to a Reuters poll. Following the decision, the Pound Sterling rose from around $1.2906 to $1.2932 and closed 0.83% at 1.2985 against the USD.
(GBPUSD Daily Price Chart, Source: Trading View)
In his comments, Andrew Bailey, Governor of the Bank of England, noted that while overall fiscal policy is expected to tighten as forecasted, budget adjustments may reduce the margin of spare capacity in the economy over the projection period. He emphasized the need for a broader reduction in services price inflation to maintain headline consumer price inflation at the 2% target. Bailey also cautioned against expecting a notably different path for interest rates at this point.
“We are in an era of ‘forever deficits’ driven by political priorities to stimulate growth and productivity,” remarked Hussain Mehdi of HSBC Asset Management. A cooling labour market should help exert downward pressure on services inflation in the coming months, though the latest UK budget could contribute to inflationary pressures in the longer term.
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