Buses pass in the financial neighborhood of London outside the royal exchange near the bank of England, July 2, 2021 in London, the United Kingdom.
Mike Kemp | In pictures | Getty Images
On Thursday, the Bank of England reduced its first decrease in interest rates in 2025, continuing the mitigation of monetary relief due to constant concern due to the slow growth of the British economy.
The central bank has reduced its reference interest rate by 25 base points to 4.5%, and most of the seven members of nine strong committees for monetary policy voted for.
Economists widely expected the central bank to reduce rates, after a series of growth data in the UK.
Economics flat in the third quarterAccording to the December data, while the last month’s reading of GDP has shown that the economy has increased by only 0.1%in November, after decreasing 0.1%in October. The weak retail data last month also added to the expectations that Boe would reduce rates.
In the meantime, the rate of British inflation fell to the lower than expected 2.5% in December, and the basic price increase slowed down further – They also encourage expectations that Central Bank policy creators will direct their first pruning in 2025. The goal of the central bank inflation is 2%.
Members of the BOE Monetary Policy Committee must judge how to balance the need to increase growth with an inflation risk representing a trade war, as US President Donald Trump intends to impose tariffs with US closest trade partners and threatened to apply the same measures to the EU and the UK
What follows?
Economists are now considering the Kamat Rate Path in 2025, given that central bank policy donors will be careful that the UK is considered “caught between trade wars and poor homemade swing,” notes Kalum Pickering, the chief economist in Peel Hunt , earlier this week earlier this week.
“The critical question faced by creators of politics is whether it will signal that another cut could come as soon as March or that it will remain a set of a course last year – with a decrease in a rate in speed of one per quarter?” Monday.
Baza Futrola Peel Hunt, he said, was that Boe would hold a pace with one cut and that the bank would wait until May before this year is followed with the second rite.
“However, risks are distorted by creators of politics that signal the willingness to respond more strongly to economic weakness – in this way they hint at another cut as soon as March 20,” Pickering said.
Andrew Wishart, a Senior British economist in Berenberg, noted that the central bank could faster relax the need to relax monetary policy.
“So far, Boe has cut alternative meetings, but the stagnant economy and employment decline is arguing for more intense actions,” he said in a note on Monday.
“The central bank estimated that the labor market will be wide in a meeting of the meeting of December 18, before the pay data for December have discovered further losses of jobs. Based on that, it is reasonable that Boe lowers interest rates to prevent larger a fall in employment. “
Boe’s first cover of the year comes after a difficult several months for the UK Chancellor Rachel Reeves who faced permanent pressure from detection of treasury fiscal plans Last fall, which were supposed to increase the tax burden on British companies. The package attracted a wide critique of the leader of the industry for the potential influence of investment, jobs and economic growth.
Reeves defended plans, saying that difficult measures were needed to achieve economic stability and that there were no “alternatives”. She also said that the tax on business would be one -off, saying the Confederation of the British Industry last November that “does not return with more borrowing or more taxes.”
Some economists believe that the central bank could take a more gradual approach with respect to inflation risks that represent potential Trump’s tariffs, and fiscal position It was taken over by the Government of the UK.
“Despite the recent weak news of activities and uncertainty about the global prospects of Trump’s tariffs to import in the US, the stronger news of domestic pressures price means that the Bank of England is likely to still reduce interest rates only gradually,” Ashley Webb, British economist At Capital Economics, he said in a note on Wednesday.
“But while the CPI inflation can refuse from 2.5% in December last year to about 3.0% later this year, we think that the fall at below 2.0% next year will ask the bank to reduce interest rates … at 3.50% by the beginning of 2026, instead of 3.75-4.00% as investors predict, “he noticed.
