Bank of England, the royal exchange and the statue of the Duke of Wellington in the city of London on February 19, 2025 in London, Great Britain.
Mike Kemp | In pictures | Getty pictures
The Bank of England agreed with a good margin to reduce interest rates on Thursday from 4.25% to 4%, since the central bank has resumed what it describes as a “gradual and careful” approach for monetary relaxation.
At their most recent monetary policy session, the Boe was expected to fail to fail to cut the interest rates by 25 basis points, but retailers and economists were absolutely the breakdown of the support for the decision among the political decision -makers of the bank.
As it turned out on Thursday, the nine -member MPC voted with a majority of 5 to 4 to reduce the key interest rate, the “Bankzins”, to keep it in the queue. The British pound rose by $ 0.5% to $ 1.3424 compared to the dollar.
The political decision-makers had to weigh the sticky inflation-the consumer price index (CPI) rose from 3.4% in May to a hotter than expected 3.6% with a cooling job market and a glossy growth. The British gross domestic product in Great Britain contested 0.1% month compared to the month in May.
In an explanation on Thursday, the bank announced that the MPC “continues to be geared towards expressing existing or aspiring inflation -related prints in order to return inflation in the medium term”.
The MPC was initially divided into the reduction or keeping of the interest rates, whereby four members wanted to keep interest rates, four others voted on the reduction and a political decision -maker who votes for a greater reduction of 50 basis points. The committee then stopped a second round to make a majority decision to reduce interest rates by 25 basis points.
The vote reflects the “finely balanced situation”, which the MPC is currently facing in relation to the factors, according to Boe Governor Andrew Bailey.
“There is a risk of residence for inflation and in particular whether … this current increase could exist a little more than we expect. We don't actually expect it, but could it?” Bailey told Ritika Guppa of CNBC in an interview. “But … this must be determined in the context of the labor market conditions that seem to be alleviated.”
Despite the different views of the political decision -makers of the Boe, the economists expect that the downward penalty for interest rates will continue next year, but the central bank confirmed its cautious approach and found that “a gradual and careful approach for the further withdrawal of the monetary decline in directors remains.”
The timing and pace of the future reduction in the restriction of politics depend on the extent to which the underlying disinflation protocol continues to make it easier, the Boe said.
Bailey said in a press conference on Thursday, it “remains important that we do not lower the banking rate too quickly or to reduce too much”, but “there are good reasons to assume that this increase in headlines will not exist”.
British Chancellor Rachel Reeves said that the fifth interest rate of the central bank since the last parliamentary elections in July 2024 has been “welcome messages that help reduce the costs for mortgages and loans for families and companies”.
George Brown, Senior Economist at Schroders, said that the recent breach of tariffs was not a surprise, but said: “The way forward is anything but clear.”
“Jobs, growth and inflation numbers require all different political regulations, as is reflected in the unprecedented two rounds of vocales that are necessary to reach a majority,” he said on Thursday in comments by e -mail.
“In view of the uncertainty of the contradictory data, the committee has the right to” adhere to its gradual and careful “mantra,” he said, adding: “The nervousness over the labor market could cause a further cut in November, but this will be difficult to justify, unless disinflation is clearly clear.
However, some economists believe that the central bank could continue.
“Despite the unexpected increase in CPI inflation in June, we still think that the weakness on the labor market is only a matter of time before growth and inflation are more slower in accordance with the inflation goal of 2% in accordance with the British economist in the capital economy.
“We believe that the Bank of England will now reduce interest rates from 4.25% to 3.00% in 2026, which would take on interest rates below the price of 3.50% in the financial markets,” he said in a note on Wednesday.
No “smoke weapon”
Economists referred to the labor market as a key factor when making political decision -makers, but said that there was no “smoking weapon” or a conclusive evidence of a solid downturn in employment figures.
“The question that is in this meeting is whether a more worrying deterioration in the workplace market is imminent,” said James Smith and Chris Turner from ING in a note and added that “Slack is undoubtedly built up”.
On Wednesday, June 18, 2025, a waiter is preparing a restaurant terrace before the opening in London, Great Britain. Employment in the UK has dropped the most in five years and wage growth slowed down more than forecast.
Bloomberg | Bloomberg | Getty pictures
“The number of employees paid in the past eight months has dropped in seven acceptance. The unemployment rate has increased by a few tenths of percentage this year … this year … [and] In fact, vacancy data indicates that the British workplace market has further cooled than in other large economies, ”they stated.
However, the analysts marked this by a “slowly moving story”, with the weakness of the employment figures concentrated in the hospitality sector, which were disproportionately influenced by the recent tax increases over the national minimum wage and salary accounting taxes.
“In other words, there is no smoking weapon that could still provide a fundamental rethinking in the prospects of the bank. In the meantime, the inflation data still turns to sticky,” said the ING analysts.
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