LONDON: The Bank of England cut interest rates from a 16-year high on Thursday after a tight vote by its policymakers who were split over whether inflation pressures had eased sufficiently.
Governor Andrew Bailey led the 5-4 decision to reduce rates by a quarter-point to 5% and he said the BoE would move cautiously going forward.
It was the central bank’s first cut since March 2020, at the start of the COVID-19 pandemic, giving Britain’s new government a boost as it seeks to speed up the pace of economic growth.
But Bailey stressed the BoE was not committing to a series of quick reductions in borrowing costs.
“We need to make sure make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much,” he said in a statement.
Most economists polled by Reuters had expected a cut while financial markets had seen just over a 60% chance.
Sterling slipped to its lowest against the US dollar since early July and bond yields also fell slightly after the BoE’s announcement with the yield on 10-year gilts touching its lowest since March.
Bailey insisted the BoE would take its decisions on rates “from meeting to meeting” but investors were betting on another rate cut this year with the chance of a move at its next meeting in September seen as a roughly 55% probability.
“The Bank of England is staying tight-lipped on when it expects to cut rates again,” ING economist James Smith said. “But we think better news on services inflation and wage growth can unlock one, or more likely two rate cuts by year-end.”
Borrowing costs had been on hold for almost a full year - the longest period they have been left unchanged at the peak of a BoE tightening cycle since 2001.
Comments
Comments are closed for this article.