Bank Of England Cuts Rate In Tight Vote

(RTTNews) - The Bank of England reduced its benchmark interest rate in a close call on Thursday suggesting that the monetary easing cycle is nearing an end as policymakers became more concerned about persistent inflation.

The Monetary Policy Committee, headed by BoE Governor Andrew Bailey, voted 5-4 to cut the bank rate by 25 basis points to 4.00 percent.

Markets anticipated a quarter-point reduction today. The fifth cut since last August took the rate to the lowest since early 2023.

The MPC conducted a second round of voting to arrive at the decision, in which five members sought 25 basis point cut and four members voted to hold the rate at 4.25 percent.

In the initial round, four members voted in favor of cutting the rate by 25 basis points, while another four preferred to maintain the rate at 4.25 percent and Alan Taylor voted for a 50-basis point cut. "A gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate," the BoE said in a statement.

"The restrictiveness of monetary policy had fallen as Bank Rate had been reduced," the bank added.

Although inflation is projected to rise slightly further to peak at 4.0 percent in September, it is set to fall back thereafter towards the 2 percent target, the central bank said.

The committee judged that the upside risks around medium-term inflationary pressures have moved slightly higher since May.

Policymakers noted that underlying GDP growth remained subdued, consistent with a continued, gradual loosening in the labor market. The economy is forecast to grow 0.1 percent in the second quarter. Downside domestic and geopolitical risks around economic activity remain, while trade policy uncertainty has diminished somewhat, the bank said.

ING economist James Smith said the BoE statement hints that the easing cycle is nearing its end.

Although policymakers are visibly worried about a more persistent bout of inflation as the headline number is higher than target, the economist expects another cut in November.

With signs that the labor market is beginning to loosen and unemployment edging upwards, the Bank is right to act to mitigate the risk of a deeper downturn, British Chambers of Commerce Head of Research David Bharier said.

As the MPC continues to walk this tightrope, rate cuts are likely to remain gradual, the Confederation of British Industry Deputy Chief Economist Alpesh Paleja said. The CBI expects two more reductions, with interest rates settling at 3.5 percent early next year.