The Bank of England announced a 0.25 percentage point cut on Thursday, attributing the move to a temporary spike in inflation forecasts for the current year. The decision to reduce the rate to 4.5% aligned with economists' expectations. However, two officials advocated for a more substantial rate decrease amidst weaker economic growth.
Following the announcement, the pound declined to $1.2370 from $1.2425 and was 1% lower for the day. It also weakened against the euro, trading around 83.74 pence compared to 83.40 pence earlier. UK government bond yields dropped, with two-year yields down 3.4 basis points to 4.108%.
London's FTSE and FTSE 250 indexes both saw gains of around 1.5%. Market expectations suggested a further 67 basis points of easing by the Bank of England by the end of the year.
Analysis by experts indicated a dovish sentiment within the Bank. Economists anticipate additional rate cuts potentially leading to a 3.75% base rate by the end of 2025. Economic uncertainty persists, influenced by factors such as tax increases and the National Living Wage.
The Bank of England's decision aims to counterbalance economic sluggishness and ease inflationary pressures. While rate cuts are welcomed in the short term, vigilance is crucial to manage potential long-term consequences.