6th Feb 2025 12:23
(Alliance News) - The Bank of England on Thursday lowered interest rates by 25 basis points as expected with two members pushing for a bigger cut.
The BoE's Monetary Policy Committee voted 7 to 2 for the expected quarter-point cut which takes bank rate to 4.50%, from 4.75%.
All members of the MPC backed a cut in interest rates. Two members Swati Dhingra, and previous 'hawk' Catherine Mann, preferred a larger 50 basis points cut, which would have taken base rate to 4.25%.
The MPC judged there had been sufficient progress on disinflation in domestic prices and wages to support the rate cut and said a "gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate."
In a statement, the BoE noted economic growth has been weaker than expected at the time of the November Monetary Policy Report, and indicators of business and consumer confidence have declined. GDP growth is expected to pick up from the middle of this year, it noted.
The BoE thinks GDP fell by 0.1% in the fourth quarter and will rise by 0.1% in the first quarter.
CPI inflation is now expected to rise quite sharply in the near term, to 3.7% in the third quarter, owing in part to energy prices, before easing again.
"The MPC judged that this would not lead to additional second-round effects on underlying domestic inflationary pressures," it added.
The BoE highlighted risks around inflation persistence, and uncertainties around both demand and supply in the economy that could have implications for monetary policy.
"Should there be greater or longer-lasting weakness in demand relative to supply, this could push down on inflationary pressures, warranting a less restrictive path of bank rate," the BoE added.
On tariffs, the BoE noted "a rapidly evolving situation, which it would be monitoring closely".
Shortly after the announcement the pound was trading at USD1.2384 lower compared with USD1.2423 shortly before. The FTSE 100 was up 131 points, rocketing from being 96 points to the good before the news.
Attention will now switch to a press conference with Governor Andrew Bailey at 1230 GMT.
The Bank of England's decision comes amid concerns of a likely increase in the coming months due to rising energy prices and increased labour costs.
The BoE's next meeting is in March, six days before the next UK fiscal event, the spring forecast.
By Jeremy Cutler, Alliance News reporter
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