The Bank of England reduced their base rate to 4.5% last week, as had been widely expected in the days leading up to the decision.
The decision was made by a 7-2 majority. The minority of two members were looking for the rate to be reduced to 4.25%.
In announcing their decision, the Monetary Policy Committee (MPC) outlined their thoughts on the economy. Here are some highlights.
Inflation forecasts
The Consumer Price Index (CPI) was 2.5% for the last quarter of 2024. The Bank expects CPI inflation to increase to 3.7% by autumn 2025 due to higher global energy costs and regulated price changes.
However, the MPC also feel that pressures on inflation at a domestic level are moderating and will wane further as 2025 progresses. So, they expect CPI inflation to fall back to 2% from the end of 2025.
Growth forecasts
The Bank expects GDP growth to pick up from the middle of this year. They believe that the economy’s ability to produce goods and services has grown more slowly than previously estimated. So, while they’ve noted a slowdown in demand, they judge that only a small amount of unused capacity has been created in the economy.
These and other factors led the MPC to reduce the rate to 4.5%.
Will there be future rate cuts?
Looking forward to future potential rate cuts, the MPC has said “a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate.” They stressed that there are ongoing uncertainties around demand and supply in the economy.
The MPC also highlighted the global economic uncertainty and a pickup in financial market volatility due to the recent announcements in the US on trade tariffs and subsequent retaliatory measures. This is something they continue to monitor.
To review the Monetary Policy Summary in full, see: https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2025/february-2025
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