Bank of England Cuts Interest Rates to 4.75%

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Facts

• The Bank of England (BoE) cut interest rates to 4.75% Thursday — a 0.25 decrease. This is the second interest rate cut by the BoE this year.^[1]
• The BoE's monetary report summary said this cut, which passed by an 8-1 vote by the Monetary Policy Committee (MPC), was based upon 'continued progress in disinflation' — citing, in particular, 'abated' external shocks.^[2]
• The BoE began cutting interest rates from a 16-year high of 5.25% in August. The rates had risen 14 consecutive times between March 2020 and December 2021, as inflation hit a peak of 11.1% in October 2022.^[3]
• BoE Gov. Andrew Bailey said that despite Thursday's announcement, interest rates would not be cut in the future 'too quickly or too much' and, based on expected economic forecasts, rates would 'continue to fall gradually from here.'^[4][5]
• In the year to September 2024, Consumer Price Index (CPI) inflation fell to 1.7%, sitting below the BoE target of 2%. However, the BoE estimates that inflation will rise to an average of 2.4% in Q4 this year, reaching 2.8% by Q3 2025, before decreasing to 2.2% in Q4 2026 and falling further to 1.8% in Q4 2027.^[6][2]
• The BoE has estimated that, following Labour's budget last week, inflation will increase by 0.5 points at its peak, compared to previous forecasts, and GDP growth will also be raised by 0.75 points at its peak. Following the BoE decision, the pound sterling saw a 0.10% increase on the euro and a 0.70% rise against the US dollar.^[7][2]

Sources: ^[1]BBC News, ^[2]bankofengland.co.uk, ^[3]Verity, ^[4]Guardian, ^[5]thesun.co.uk, ^[6]Consumer price inflation and ^[7]Poundsterlinglive.

Narratives

• Left narrative, as provided by Guardian. This decision shows confidence in Chancellor of the Exchequer Rachel Reeves's pro-growth economic plan. While some will inevitably complain, and the UK economy is in dire need of a substantial overhaul, the Labour government has taken its first steps in leading the country back in the right direction and will only benefit from another interest rate cut.
• Right narrative, as provided by The Telegraph. The BoE's analysis is clear: progress has been made to reduce inflation, but Reeves's high-cost agenda is at risk of undoing the hard work of the last two years. Given Labour's spending obsession, it is likely that Bailey and the BoE will have to slow down interest rate cuts even further, placing greater financial pain on millions of homeowners and working people.

Predictions