Bank of England Cuts Interest Rate for First Time Since 2020

In the recent Monetary Policy Committee (MPC) meeting, five members, including BoE Governor Andrew Bailey, voted in favor of the 25 basis point cut, while four members preferred to keep the rate unchanged.

This move signals the BoE's intention to potentially implement more cautious rate cuts in the future. However, no details were provided about where the rate might stabilize or the pace of future reductions.

The BoE’s statement noted that the MPC will continue to closely monitor inflation indicators. It mentioned that the drop in headline inflation and signs of normalization in inflation expectations are expected to weaken wage and price-setting dynamics. As economic growth falls below potential and the labor market loosens further, a margin of slack in the economy is anticipated. The statement also suggested that domestic inflationary pressures are expected to diminish over the next few years due to the restrictive stance of monetary policy.

BoE Governor Andrew Bailey remarked, "Inflationary pressures have eased enough for us to lower interest rates today. However, we need to ensure inflation remains low and avoid cutting rates too quickly or too much."

In June, the annual inflation rate in the UK was 2%, unchanged from May. The core inflation rate, excluding energy and food prices, was 3.5% year-on-year in June, the same as in May. The inflation rate in the services sector was 5.7% year-on-year in June.

Source: Reuters