The Bank of England reduces interest rates

The Bank of England (BOE) has decided to reduce interest rates by a quarter of a percentage point to 4.5%.

The Monetary Policy Committee (MPC) voted by a majority of 7 to 2 to reduce the banking rate. Two members preferred to reduce it by 0.5 percentage points, to 4.25%.

When he arrived at his decision, he explained that there had been “substantial progress” on disinflation in the past two years, because the previous external shocks have decreased, and as the restrictive position of monetary policy has slowed down the Effects of the second round and stabilized in the longer term expectations of inflation.

“This progress has enabled the MPC to gradually withdraw a certain degree of restraint from the policy, while maintaining the banking rate in restrictive territory in order to continue to express persistent inflationary pressures,” he added.

IPC inflation was 2.5% in 2024 Q4. The interior inflationary pressures are moderate, explains the Bank of England, but they remain some little high and that some indicators have supported themselves more slowly than expected.

Higher global energy costs and regulated price changes should increase the inflation of the IPC to 3.7% in 2025 Q3, even if the underlying internal inflationary pressures should be more lowered.

Although the inflation of the IPC should fall back on the target of 2% thereafter, the Committee claims that it will pay particular attention to any consequent sign of more sustainable inflationary pressures.

GDP growth was lower than expected at the time of the November monetary policy report, and business and consumer trust indicators have decreased.

GDP growth is expected to resume the middle of this year, he said.

“The labor market has continued to relax and is deemed largely in balance,” he added.

“Productivity growth has been lower than that previously estimated, and the Committee considers that the growth in the ability to supply the economy has weakened.

“Consequently, the recent slowdown in demand is deemed to have led to a small le opening of Slack.”

In support of the return of inflation in a sustainable way to the target of 2%, the committee judged that there had been sufficient progress on the disinflation of prices and wages to reduce the rate.

“Based on the evolutionary vision of the medium-term perspective committee for inflation, a progressive and meticulous approach to the additional withdrawal of the restraint of monetary policy is appropriate,” he said.

“In addition to the risks linked to the persistence of inflation, there are also uncertainties around the trajectories of demand and the supply of the economy which could have implications for monetary policy.

“If there is a more or more sustainable weakness of demand compared to the supply, this could advance inflationary pressures, guaranteeing a less restrictive path of the banking rate.”

If there should be a more limited offer compared to demand, the Bofe says that this could support the prices of internal and wages, in accordance with a relatively tighter monetary policy.

The committee says that it will continue to closely monitor the risks of persistence of inflation and what evolutionary evidence can reveal on the balance between the global supply and the demand of the economy.

“Monetary policy will have to remain restrictive for enough time until the risks of inflation return permanently to the target of 2% in the medium term have dissipated,” he added.

“The committee will decide on the appropriate degree of restriction of monetary policy at each meeting.”

When Bank for the last time the prices examined in DecemberHe decided to leave interest rates unchanged at 4.75%, highlighting the recent increases in inflation.

THE The last drop in rates took place in NovemberWhen the bank reduced it by a quarter of a percentage point, from 5% to 4.75%.

The reduction followed A cup of the same amount in AugustFrom 5.25% to 5%, after the bank has held rates at 16 since August 2023, while it was trying to turn on prices across the United Kingdom.