Bank of England Cuts Interest Rates from 16-Year High

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Facts

  • The Bank of England's (BoE) Monetary Policy Committee (MPC) voted by a margin of 5-4 on Thursday to reduce its Bank Rate of interest by 0.25 percentage points to 5% — citing 'progress in moderating risks of persistence in inflation.'[1]
  • Consumer Price Index (CPI) inflation in the UK sat at 2% — the BoE's target figure — in both May and June. The MPC projects inflation in the UK to rise to 2.75% in the second half of 2024 before falling to 1.7% and 1.5% in two and three years, respectively.[2]
  • The cut is a first since March 2020. Beginning in December 2021, the BoE had increased interest rates 14 consecutive times to 5.25%, while inflation hit a peak of 11.1% in October 2022.[3][4]
  • The Bank has also revised expectations over UK 2024 gross domestic product (GDP) growth to 1.25%, having previously predicted the economy to grow by 0.5% this year.[4]
  • Despite the interest rate cut, the BoE stated that it was necessary to 'make sure inflation stays low and be careful not to cut interest rates too quickly or by too much.'[5][6]
  • Following the BoE announcement, the pound sterling fell against both the euro and the US dollar, with both down by over 0.5% as of 2 pm ET.[7]

Sources: [1]Bankofengland, [2]Bank of England, [3]Spectator (UK), [4]theguardian.com, [5]BBC News, [6]GB News and [7]Poundsterlinglive.

Narratives

  • Pro-establishment narrative, as provided by Forbes. With many expecting the BoE to remain firm at 5.25%, today's decision is a small win for the property and mortgage markets. With lenders already beginning to bring down prices, the news is reaffirmation to many that things are slowly but surely getting better.
  • Establishment-critical narrative, as provided by Guardian. A small reduction in the BoE's interest rate will do next to nothing for millions who have been affected by the cost of living crisis. While the UK may be over the worst of the post-pandemic era, and an interest rate cut will certainly be of some help to small groups, the economy irrespectively remains extremely fragile.

Predictions