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The Bank of England has halved its growth estimate by 2025 and has reduced interest rates by a quarter of a point to 4.5%, as it is a British stagnant economy and a increasingly uncertain international environment.
In a blow for the British Chancellor Rachel Reeves, the BOE said that it was now expecting the economy to increase by 0.75% this year, half of its November forecasts by 1.5% and that Inflation increases before retiring.
“We are now expecting the GDP growth to be lower in the short term before resuming the middle of the year,” said Boe governor Andrew Bailey.
Thursday’s forecasts, which will stagnate stagflation fears, have occurred while the nine members of the monetary policy committee voted to reduce the reference rates of their previous 4.75%.
A majority of seven favored a movement of a quarter of a point, while two supported a reduction in half-point Jumbo, including Catherine Mann, previously a leading hawk.
The expectations of faster rate drops have briefly weakened the book by more than 1% compared to the dollar and helped the FTSE 100 at a record level.
Neil Birrell, director of investments at Premier Miton Investors, said that the drop in prices was intended to “give the economy a boost” which was “essential”.
He added that the votes for a reduction of half a point have clearly shown concerns about “the state of economic growth of the United Kingdom”.
The BOE estimated that GDP had dropped by 0.1% in the last quarter of 2024, although it has planned growth collection at 1.5% for 2026 and 2027.
He indicated that the decision of Reeves to increase national contributions of insurance of employers would reach more jobs and more than expected prices, the unemployment rate increasing to 4.8% compared to next year, 0, 0, 5 more than its previous forecasts.
Swap market merchants are now expecting two additional drops this year, with around 40% of a third – a slightly higher probability than before the BOE decision.
The Central Bank said it would take a “cautious” approach to additional rate reductions, which suggests that market expectations earlier in the day of a series of cuts were exaggerated.
Bailey, who declared in comments to Bloomberg that investors should not “put too much weight” on the MPC vote, added that he expected that the BOE could further reduce the rates ” as the disinflation process continues ”.
But he recognized that there was now “more uncertainty” on the speed to which inflation would drop.
In its latest forecasts, the BOE estimated that inflation would drop to 3.7% in the third quarter of this year, mainly due to the rise in energy prices, before returning to around 2.5% in 2026 and the target of 2% in 2027.
The pound dropped up to 1.2% compared to the dollar during the day, before exceeding its losses to exchange 0.6% at the end of the afternoon at $ 1.244.
The FTSE 100, many members of which recorded income in dollars, closed 1.2% per day.
Sir Keir Starmer, Prime Minister, welcomed the reduction on Thursday, but said that there was “more to do” to increase growth, including the construction of nuclear power plants.
But Mel Stride, spokesperson for the Conservative Treasury, said that the country was faced with a “Starmflation” – a combination of growing inflation and slow growth due to government policies.
The BOE has also noted “an increase in economic uncertainty worldwide and management of the volatility of the financial market”, according to the report of the meeting. He added that he “closely monitored” the pricing plans for the new administration of Donald Trump.
The American president hinted that the United Kingdom could be spared the tasks which it plans to impose on trade partners such as the EU, Canada and Mexico.
Bailey said that if Trump’s prices contributed to a “fragmentation” of the global economy, it would be negative for growth but that the implications for inflation were much more difficult to disentangle, because we did not know how the countries would react.
He added that the BOE had not included the impact of prices in its inflation forecasts “because we just don’t know what will happen.”
