Bank of England Lowers Rates by 0.25% to 4.5%
The Bank of England (BoE) lowered interest rates by 0.25% at today’s policy meeting, bringing the bank rate to 4.5%, its lowest level since May 2023. The move was widely expected and the Monetary Policy Committee vote to lower rates was unanimous at 9-0. Seven of the members voted for a 0.25% cut while two members voted for a larger cut of 0.50%.
Bailey says BoE Expects to Continue Lowering Rates
The BoE has now lowered rates three times since it started its easing cycle last August. Governor Bailey sounded dovish at his post-meeting press conference, saying that the central bank expects to make further cuts during the year. Bailey added that the rate decisions would be made on a meeting-by-meeting basis.
The BoE’s rate statement was optimistic on inflation, noting there had been “substantial progress on disinflation over the past two years”. Still, the statement stressed the cautious stance of the Bank, saying that it would take a “gradual and careful” approach to further rate cuts. This means we can expect further rate cuts in modest increments of 0.25%, provided that inflation does not show any sharp moves, either up or down.
The UK economy remains sluggish and this week’s PMIs point to weakness in the services, manufacturing and construction sectors. The construction PMI, released earlier today, dropped sharply to 48.1 from 51.2, which indicates contraction. This weak release has contributed to the British Pound’s sharp slide today.
Weak UK data such as the January PMIs support the case for the BoE to continue trimming interest rates during the year. Lower rates would give the economy a boost but would also put downward pressure on the British Pound, which has plunged 7.4% against the US dollar since October 1st 2024.
British Pound Slides, Stock Market Jumps After BoE Rate Cut
The GBP/USD currency pair has declined sharply after today’s rate cut and is trading at $1.2397 in the North American session, down 0.86% on the day. The softer-than-expected Construction PMI has also contributed to the British Pound’s sharp losses.
The FTSE 100, the benchmark UK stock index, has moved in the opposite direction of the British Pound as investors cheered the BoE’s dovish rate cut. The FTSE 100 has climbed 132.43 points (1.54%) on the day and is currently at 8755.22.