Bank of England cuts interest rates to 4.5 percent, lowest since 18 months

The Bank of England has announced an interest rate cut, lowering the rate from 4.75% to 4.5%, the lowest level in 18 months. This action was prompted by an unexpected drop in the inflation rate for December, from 2.6% to 2.5%. Economists had previously predicted this rate cut, anticipating that it would reduce repayments for homeowners with floating-rate mortgages.

Chancellor of the Exchequer Rachel Reeves welcomed the interest rate cut, while also expressing dissatisfaction with the current pace of economic growth. She stated that the cut would help alleviate cost-of-living pressures on families across the country and make it easier for businesses to borrow money to grow. However, she emphasized that the government still needs to take more measures to kick-start economic growth faster and increase the income of working people.

Bank of England Governor Andrew Bailey stated that the interest rate cut would have a positive impact. The central bank pledged to continue assessing domestic economic conditions and global trends, and to take cautious steps to gradually lower interest rates further. Bailey emphasized that low and stable inflation is crucial for a healthy economy, and it is the Bank of England's top priority.

Seven of the nine members of the Monetary Policy Committee (MPC) voted to lower the base rate, while Swati Dhingra and Catherine Mann advocated for a larger rate cut to 4.25%. The Conservative Party welcomed the rate cut but warned that Labour's "disastrous budget" could lead to fewer rate cuts than expected this year. Shadow Chancellor Mel Stride stated that many families and businesses affected by Labour's mismanagement would welcome this news, but Labour's budget may mean fewer rate cuts this year.

The Bank of England's base rate has remained at 4.75% since last November, sparking widespread speculation about the magnitude and speed of interest rate declines. Currently, the focus is shifting to the impact of Trump's policies on the global economy. Bank of England Governor Bailey, at a recent meeting, declined to speculate on the potential impact of Trump's tariffs on the UK economy, stating, "Let's wait and see." Meanwhile, the US Federal Reserve has indicated that it plans to lower interest rates at a slower pace than initially anticipated.