Bank of England joins global easing cycle with 1st rate cut in 4 years

The bank said that by a 5-4 margin, its policymaking panel backed a quarter-point reduction in its main interest rate to five per cent, from the 16-year of 5.25 per cent.

The Bank of England has cut interest rates for the first time since the onset of the COVID-19 pandemic in early 2020 as inflationary pressures in the economy have eased.

In a statement Thursday, the bank said that by a 5-4 margin, its policymaking panel backed a quarter-point reduction in its main interest rate to five per cent, from the 16-year of 5.25 per cent.

Economists were divided as to whether the bank, which is independent of government, would cut rates given persistent price pressures in the services sector, which accounts for around 80 per cent of the British economy.

Though those concerns remain, certainly among the four opting to keep borrowing rates on hold, inflation in the U.K overall is down at the bank’s target of two per cent.

“Inflationary pressures have eased enough that we’ve been able to cut interest rates today,” said Bank Gov. Andrew Bailey, who voted for a cut. “But we need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much. Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country.”

Bailey’s comment suggests that interest rates will not be falling dramatically over coming months, certainly nowhere near the pace that the bank had hiked them in recent years.

Central banks around the world dramatically increased borrowing costs from near zero during the coronavirus pandemic when prices started to shoot up, first as a result of supply chain issues built up during the pandemic and then because of Russia’s full-scale invasion of Ukraine which pushed up energy costs.

Though no one is anticipating rates to fall to those previous lows, there are widespread expectations that the bank will cut again in coming months, especially as its forecasts suggest inflation will be below target in the next couple of years, despite a modest increase in the second half of the year.