Bank of England Cuts Rates, Sees Weaker Growth and Inflation Spike

• The Bank of England (BoE) cut interest rates by a quarter-point and some policymakers wanted a bigger move to offset a slowdown, but the BoE said it would be careful about further moves in the face of an expected inflation spike and global economic uncertainty.
• Thursday's cut marked the third since the BoE started lowering borrowing costs from a 14-year high in August. It leaves British rates among the highest for advanced economies and at the top of the U.S. Federal Reserve's range of 4.25-4.5%.
• The BoE also halved its 2025 growth outlook - a blow for finance minister Rachel Reeves who is seeking to speed up the economy - while a jump in inflation to almost double the central bank's 2.0% target this year would probably be temporary. Analysts focused on the downbeat growth outlook which the BoE said had weakened since its last forecasts, published a few days after Reeves' budget announcement.
• Hit by worries among businesses about the economic policies of the new Labour government, the risk of a global trade war led by U.S. President Donald Trump, and rising costs, Britain's economy has barely grown since mid-2024. The BoE said it likely contracted by 0.1% in the three months to December.
• It said it was unclear exactly how any future U.S. trade tariffs would affect inflation in Britain, but said higher global tariffs were likely to cause slower growth, even if Britain was not specifically targeted. Governor Andrew Bailey said this global uncertainty was a factor behind the decision to add the word "careful" to the bank's guidance about its future stance on rate cuts, which it continued to also describe as "gradual".

(Source: Reuters)