It was a narrow voting margin for the Bank of England’s (BoE) nine-member Monetary Policy Committee, five of whom agreed to cut interest rates from 4.25 per cent to 4 per cent on Thursday.
The central bank said it would resume its “gradual and careful” approach to monetary easing.
“The MPC remains focused on squeezing out any existing or emerging persistent inflationary pressures, to return inflation sustainably to its 2 per cent target in the medium term,” BoE said in a statement.
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The country has been battling inflation since a while – the Consumer Price Index (CPI) rose to 3.6 per cent in June from 3.4 per cent in May. Fewer jobs and lackluster growth had contracted the country’s GDP by 0.1 per cent month-on-month in May.
Thursday’s rate-cut led to the British pound rising by 0.5 per cent against the dollar, to $1.3424.
While four members of the MPC voted to hold rates, four others voted to cut and one voted for a bigger, 50 basis points cut. It was novel for the MPC to then hold another round of voting to arrive at a majority decision to slash interest rates by 25 basis points.
Governor of the Bank of England, Andrew Bailey, said in a press conference Thursday that it “remains important that we do not cut bank rate too quickly or by too much,” but added that “there are good reasons to think that this rise in headline inflation will not persist.”
While UK Chancellor Rachel Reeves welcomed the rate cut decision, saying it was the central bank’s fifth interest rate cut since the last general election in July 2024, she said it would help bring down the cost of mortgages and loans for families and businesses.
Economists, however, said the path ahead was unclear, even though the rate cut was expected.
“Jobs, growth and inflation figures all call for different policy prescriptions, as reflected in the unprecedented two rounds of voting needed to reach a majority,” said George Brown, senior economist at Schroders, to CNBC.
“Given the uncertainty presented by the conflicting data, the committee is right to stick to its ‘gradual and careful’ mantra,” he said.
Predicting another cut in November, Brown said any more cuts will be difficult to justify, unless disinflation is clearly underway.
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