Bank of England Lowers Interest Rates to 4.75% Amid Falling Inflation and Economic Uncertainty
The Bank of England recently reduced its interest rates for the second time in 2024, setting it at 4.75%, down from 5%. This decision comes in response to the country's persistent inflation concerns and signals a cautious easing of monetary policy to help mitigate economic strain on households and businesses. This rate cut is the lowest since June 2023 and reflects the Bank’s intention to bring inflation closer to its 2% target.
Chancellor Rachel Reeves indicated that this adjustment would alleviate some financial pressure on UK families, though she also acknowledged the ongoing economic challenges amplified by the previous government’s fiscal policies. Meanwhile, UK inflation, which fell to 1.7% in September, has shown improvement, particularly due to declines in petrol and airfare prices. This declining trend in inflation was a significant factor influencing the Bank’s rate cut.
Economists are noting, however, that while the rate cut may provide short-term relief, the government’s recently increased public spending could contribute to inflationary pressures, with spending hikes forecasted to reach around £70 billion per year. While this increased spending could bolster economic growth, it may complicate efforts to keep inflation down over the long term. The Office for Budget Responsibility (OBR) has projected that inflation will likely remain above target in 2025, even as economic growth strengthens.
This decision also aligns with recent moves by the U.S. Federal Reserve, which is anticipated to announce a similar rate cut. The global context, including the effects of U.S. fiscal policy, plays a role in shaping UK monetary policy decisions, especially with higher U.S. trade tariffs potentially driving inflation in both the UK and the U.S. Markets are thus cautious in their expectations, with analysts forecasting that the Bank of England will continue to pursue a gradual rate reduction strategy rather than aggressive cuts.
For a more detailed understanding of the context and implications of these decisions, you may refer to sources such as ITV and Reuters, which provide insights into both economic policy and projected inflation trends.
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