Monday, March 31, 2025
11.8 C
London

Bank of England Cuts Interest Rates as Inflation Forecasts Rise

The Bank of England has lowered interest rates for only the second time since 2020, cutting the base rate by 0.25 percentage points to 4.75%. The decision was made by the Bank’s Monetary Policy Committee (MPC) with an 8-1 vote, stronger than the 7-2 split expected by analysts. Catherine Mann, the lone dissenter, argued for keeping rates unchanged.

The Bank’s governor, Andrew Bailey, emphasized that the reduction is part of a gradual strategy, noting that while the economy is expected to evolve as forecasted, inflation remains a key concern. “We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much,” Bailey said in a statement.

The decision comes after Finance Minister Rachel Reeves’ recent budget, which includes significant tax hikes, spending increases, and borrowing measures. The Bank of England projected that these measures will boost UK economic growth by around 0.75% next year. However, the impact on long-term growth is expected to be minimal, with little improvement in annual growth rates over the next two or three years.

The Bank also noted that the budget would add upward pressure on inflation. It predicted that inflation would rise by nearly half a percentage point at its peak, delaying the return to the Bank’s 2% target by at least a year. Inflation is now expected to reach 2.5% by the end of 2024 and 2.7% by the end of next year, before gradually returning to the target by 2027.

While the MPC has signaled that further rate cuts are likely, it has also cautioned that these adjustments will be gradual. The Bank’s outlook suggests that, despite some positive economic effects from government spending, inflationary pressures, including higher taxes and wage costs, will weigh on the recovery.

The Bank of England also revised its economic growth forecast for 2025 upward, from 1% to 1.5%, citing stronger government consumption and investment. However, the forecast for 2023 growth was downgraded from 1.25% to 1%, reflecting weaker-than-expected past growth.

Despite these revisions, the Bank acknowledged that it had not updated its outlook to account for the recent rise in market borrowing costs. Had these higher interest rates been factored in, the outlook for both inflation and growth might have been less optimistic.

Looking ahead, the Bank reiterated that monetary policy must remain restrictive for an extended period to ensure inflation returns sustainably to its target.

Hot this week

New Academic Directions at British Universities – Specialists Wanted with a Resume from These Institutions

In an ever-evolving global economy, British universities are rapidly...

Myanmar Faces Worsening Humanitarian Crisis Following Devastating Earthquake

Myanmar is grappling with an escalating humanitarian crisis following...

Ireland Aims to Secure Crucial Win Against Italy in Women’s Six Nations

After demonstrating their ability to challenge stronger opponents, Ireland's...

Irish Aid Agency Goal Faces Major Job Losses Amid Global Aid Cuts

Irish humanitarian organisation Goal has warned that more than...

Ireland Women’s Team to Face Slovenia at Páirc Uí Chaoimh in UEFA Nations League

The Republic of Ireland women’s national team will return...

Topics

Myanmar Faces Worsening Humanitarian Crisis Following Devastating Earthquake

Myanmar is grappling with an escalating humanitarian crisis following...

Ireland Aims to Secure Crucial Win Against Italy in Women’s Six Nations

After demonstrating their ability to challenge stronger opponents, Ireland's...

Irish Aid Agency Goal Faces Major Job Losses Amid Global Aid Cuts

Irish humanitarian organisation Goal has warned that more than...

Ireland Women’s Team to Face Slovenia at Páirc Uí Chaoimh in UEFA Nations League

The Republic of Ireland women’s national team will return...

Sharp Decline in Visitor Numbers to Ireland in February, CSO Reports

Ireland experienced a significant drop in foreign visitor numbers...

Carlow Players Refute Claims Over Manager Shane Curran’s Departure

The Carlow senior football squad has strongly refuted claims...

Next Raises Profit Outlook as Shares Surge Past £1 Billion Milestone

Clothing retailer Next has revised its profit forecast upwards...

Related Articles

Popular Categories