The Bank of England (BoE) has cut the base rate by 0.25%, bringing it to its lowest level since May 2023. Seven members of the Monetary Policy Committee (MPC) supported the move, but two pushed for a deeper cut to 4.25%.
Governor Andrew Bailey warned that inflation could climb to 3.7% this year. Despite progress in reducing inflation over the past two years, the Bank emphasised the need to keep rates at a restrictive level. Inflation currently stands at 2.5%, while GDP grew by just 0.1% in November. The Bank does not expect any significant economic growth until mid-2025.
Concerns are mounting over additional pressures on businesses, including an increase in employers’ National Insurance contributions and the rise in the minimum wage from April. These changes have dampened business confidence heading into 2025.
The rate cut relieves businesses struggling with rising costs, but the UK is cutting rates slower than major global competitors. There are also fears over the potential impact of US-imposed tariffs on the EU, which could indirectly harm UK trade. Despite forecasting higher inflation, Bailey did not mention the US tariff threat in his remarks.
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