On Thursday, the Bank of England lowered interest rates from a 16-year high following a close vote among its policymakers who disagreed about how much inflation pressures had decreased. Governor Andrew Bailey led the 5-4 vote to lower rates by a quarter point to 5%, declaring that the BoE would proceed cautiously. This was the central bank’s first rate cut since the COVID-19 pandemic began in March 2020, which will help Britain’s new government accelerate economic growth.
Bailey, however, emphasised that the BoE was not promising a string of rapid cuts to borrowing costs. He said in a statement, “We need to make sure inflation stays low and be careful not to cut interest rates too quickly or by too much.”
While financial markets saw just over a 60% chance of a cut, most Reuters-surveyed economists had anticipated one. Following the BoE’s announcement, bond yields also slightly decreased, with the yield on sterling falling to its lowest level since early July.
Although Bailey maintained that the BoE would decide on interest rates “from meeting to meeting,” investors placed bets on another rate cut this year, with a roughly 55% chance of one occurring at the BoE’s next meeting in September.
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