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Buses pass in the financial district of the city of London, outside the Royal Exchange, near the Bank of England, on July 2, 2021 in London, the United Kingdom.
Mike kemp | In images | Getty images
The Bank of England made its first interest rate cut of 2025 on Thursday, resuming monetary flexibility amid continuous concerns about slow growth in the British economy.
The Central Bank reduced its reference interest rate at 25 basic points to 4.5%, with a majority of seven members of the Nine Force Monetary Policy Committee voting in favor.
Economists widely expected the Central Bank to reduce the fees, after a series of dull growth data from the United Kingdom.
The economy FLATINED in the third quarterAccording to data published in December, while the last monthly reading of GDP showed that the economy expanded only 0.1% in November, after reducing 0.1% in October. Weak retail data last month also added to the expectations that the BOE would reduce rates.
The inflation rate of Great Britain, meanwhile, It fell to a 2.5% lower than expected in December, with the growth of the most slowdown prices – Also feeding the expectations that the policy formulators of the Central Bank would be directed towards their first adjustment of 2025. The inflation objective of the Central Bank is 2%.
The BOE said In a statement There had been “substantial progress in deflation in the last two years, since previous external shocks have backed down.”
However, he emphasized that “it is appropriate” a gradual and careful approach to withdraw the restriction of monetary policy. “
The members of the BOE Monetary Policy Committee must now judge how to balance the need to boost the growth with the inflationary risk raised by a nascent commercial war, since the president of the United States, Donald Trump, proposes to impose tariffs on partners closest commercials in the United States and has threatened to apply the same measures in the EU and the United Kingdom
The Bank’s monetary policy committee said that the growth of GDP would resume since the middle of this year, but said that “it would continue to closely monitor the risks of the persistence of inflation and what evidence evolving can reveal on balance between aggregate supply and demand in the economy. “
“Monetary policy must continue to be restrictive during the time long enough until the risks for inflation to return sustainably to the objective of 2% in the medium term has been further dissipated,” he concluded.
Responding to the decision of the BOE interest rate, the United Kingdom Chancellor Rachel Reeves, said in a statement that the trimming of the BOE interest rate was “news welcome”, but said that “I was not yet satisfied with The growth rate “.
The Foreign Minister said that the “Treasury plans of initiating economic growth” would work to “put more money in the pockets of the working people” and said that the government was committed to “face the blockers so that the construction of Great Britain returns Our country to rebuild roads, railways and vital infrastructure. “
What comes next?
Economists are now reflecting on the trajectory for interest rates in 2025, since the policy formulators of the Central Bank will distrust that the United Kingdom is “caught between commercial wars and the weak domestic impulse”, Kallum Pickering, economist Peel Hunt chief, observed earlier this week.
“The critical question facing those in charge of formulating policies is whether they will indicate that another cut could come as soon as March or that they will remain in the course established last year, with rates reductions at a rate of one by quarter?” He said in Comments sent by email Monday.
The base case of Peel Hunt, he said, was that the BOE will maintain a rhythm of a cut per fourth and that the bank will wait until the May meeting before continuing with a second adjustment this year.
“However, the risks are biased towards those in charge of formulating policies that indicate the will to react more strongly to economic weakness, which hints at another cut as soon as the March 20 meeting already,” said Pickering.
Andrew Wishart, a senior economist from the United Kingdom in Berenberg, said the Central Bank could perceive the need to relax monetary policy more quickly.
“Until now, the BOE has cut in alternative meetings, but a stagnant economy and the decrease in employment advocate a more urgent action,” he said in a note on Monday.
“The Central Bank considered that the labor market is widely in equilibrium at the December 18 meeting, before payroll data for December reveal new job losses. On that base, it is sensible that the BOE decreases interest rates To avoid a greater fall in employment “
The first adjustment of the BOE year occurs after a couple of difficult months for Reeves, who has faced a sustained pressure since the treasure Fiscal plans The past fall set out to increase the fiscal burden for British companies. The package attracted generalized criticisms of industry leaders on the potential impact on investment, jobs and economic growth.
Reeves defended the plans, saying that difficult measures were necessary to achieve economic stability and that “there was no alternative.” He has also said that tax increases in companies would be only, telling the Confederation of the British industry last November that “did not return with more loans or more taxes.”
Some economists believe that the Central Bank could adopt a more gradual approach given the inflationary risks raised by the possible Trump tariffs, and The fiscal position be taken by the United Kingdom government.
“Despite the recent weak news about activity and uncertainty about global perspectives due to Trump’s American import rates, the strongest news about national price pressures means that the Bank of England will probably continue to reduce the Interest rates only gradually, “Ashley Webb, an economist from the United Kingdom. In Capital Economics, he said in a note on Wednesday.
“But while IPC inflation can recover from 2.5% in December last year to around 3.0% at the end of this year, we believe that a fall below 2.0% next year will lead the bank to reduce interest rates … to 3.50% in early 2026, instead of 3.75-4.00% as investors anticipate, “he said.
