Higher water and energy bills are poised to significantly drive up inflation later this year, the Bank of England has warned.
The Bank reduced interest rates to 4.5% from 4.75% as anticipated, citing the prolonged impact of rising bills on inflation and its 2% target.
Moreover, the Bank cut its growth forecast in half, now expecting a 0.75% growth rate for this year as opposed to the previous estimate of 1.5%. Despite attempts by the government to stimulate economic growth, it remains a challenge.
Inflation is set to peak at 3.7% later this year, delaying its return to 2% until the latter part of 2027. Factors such as potential trade tariffs proposed by US President Donald Trump are being closely monitored for their impact on inflation.
Bank of England governor Andrew Bailey emphasized the importance of maintaining low and stable inflation for a healthy economy, signaling a cautious approach to further interest rate adjustments.
Chancellor Rachel Reeves welcomed the interest rate cut, yet expressed a desire for accelerated economic growth to benefit the working population.
The Bank's latest quarterly inflation report indicated stagnant economic growth since March last year, expecting a 0.1% decline for the current three-month period. This trend raises concerns of a looming recession, which is defined by two consecutive quarters of economic contraction.
The Bank's projections suggest a modest 0.1% growth for the first quarter of this year, a revision from the previously forecasted 0.3%. Official growth figures for the UK economy are due for release next Thursday.