In lowering interest rates, the Bank of England hopes to boost economic growth and ease cost-of-living pressures. Inflation and the overall outlook for the economy remain the central bank's top priorities. In order to balance growth concerns with inflation worries, the BoE's cautious approach will be crucial.
The Bank of England (BoE) has reduced interest rates from 4.75% to 4.5%, marking the third cut since August 2023 when rates peaked at 5.25%.
This decision was adopted by the Monetary Policy Committee (MPC) during its first meeting of the new year in an effort to stimulate economic growth amid concerns regarding sluggish activity.
The United Kingdom's economic growth in November was just 0.1%, after contractions in September and October.
Growth Outlook and Inflation Forecast
UK economic growth is expected to increase by 0.75% this year, down from 1.5% in November, according to the BoE.
Also this year, the central bank warned that inflation could reach around 3% before falling below 2% by 2026.
In the wake of the uncertain global economic environment and potential inflationary pressures, Governor Andrew Bailey has called for a "gradual and careful approach" to further rate cuts.
Experts' reactions
Experts welcomed the rate cut, though some remain cautious about the future.
According to Hymans Robertson analyst Chris Arcari, the Bank of England will likely maintain a cautious stance even though the economy currently permits a "modest reduction".
Hargreaves Lansdown's Susannah Streeter spoke about the risks of stagflation, with inflation remaining higher than the Bank of England's 2% target.
