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The Bank of England is expected to announce its third interest rate cut in six months this Thursday, with analysts predicting a reduction to 4.5 per cent from the current 4.75 per cent. This move comes as policymakers seek to stimulate growth in the UK’s faltering economy.
City forecasters anticipate an 8-1 vote in favour of the 0.25 percentage point cut by the monetary policy committee. Recent data from the Office for National Statistics revealed inflation dropped unexpectedly to 2.5 per cent in December, continuing its downward trajectory from its peak of over 10 per cent two years ago.
The central bank’s decision follows similar moves by international counterparts, with the US Federal Reserve having reduced rates by 100 basis points since September, while the European Central Bank has implemented five cuts since June, bringing its rate to 2.75 per cent.
Market predictions suggest the base rate will see three additional reductions throughout 2025, potentially ending the year at 4 per cent. The Bank’s growth forecasts for 2025 may face downward revision from the previous 1.5 per cent projection.
Economists warn of potential inflation pressures returning in spring, driven by rising energy costs and household bills adjusting to inflation rates. The implementation of a £25 billion increase in employer national insurance contributions in April adds further complexity to the economic outlook.
Deutsche Bank’s chief UK economist, Sanjay Raja, suggests the MPC will maintain flexibility in its approach, considering two-sided risks to both growth and inflation. The consensus among analysts points towards a cautious strategy initially, with potential for more aggressive cuts later in the year as labour market conditions soften.
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