Blitz Bureau
THE Bank of England cut interest rates on February 6 for the third time in about six months, amid signs of weak economic growth in Britain and an unexpected slowdown in inflation.
Policymakers cut the key rate a quarter point to 4.5 per cent. The BoE halved its 2025 growth outlook – a blow for Finance Minister Rachel Reeves who is pushing to speed up the economy – and said inflation would be almost double its 2 per cent target this year., according to Reuters. Governor Andrew Bailey said, “We live in an uncertain world, and the road ahead will have bumps.”
Though he said that inflation was also likely to rise through most of this year, policymakers still expected the inflation rate to return to the 2per cent target in the next few years. Policymakers expect to cut rates further, Bailey said. “But we will have to judge meeting by meeting how far and how fast.”
The inflation rate slowed slightly to 2.5 per cent in December, when economists had been expecting it to hold steady. Crucially, inflation in the services sector, which has been particularly stubborn, slowed to 4.4per cent, from 5 per cent in November, opening the door to February 6 rate cut.
Even as inflation has dropped substantially from its double- digit highs just a couple of years ago, the Bank of England has been particularly cautious in easing monetary policy. Last year, it cut rates by less than its counterparts in the United States, Canada and the eurozone.
British policymakers remained concerned about lingering inflationary risks, particularly as wage growth remained relatively strong, and uncertain about the impact of recent spending and tax changes by the government.
On February 6, the bank said it expected inflation to accelerate this year, peaking at 3.7 per cent in the third quarter, in part because of rising energy costs. That’s nearly a full percentage point higher than the forecast three months ago. But policymakers said they did not expect a jump in inflation to persist for a long time.
In the past few weeks, central bankers in Britain and elsewhere have been grappling with the risk of a global trade war. Economists say that President Donald Trump’s threats of higher tariffs and any retaliation would be a drag on economic growth, although the impact on inflation would be harder to predict.
Britain has not been the target of threats from Trump, unlike the country’s largest trading partner, the European Union. But a trade war between the United States and Europe could weigh on the British economy, which has already been experiencing lacklustre growth. The central bank said that more uncertainty could make businesses cautious about investing in the short term.
