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The recent interest rate cut was more substantial than expected, with a half a percentage point reduction being considered due to the UK's prolonged economic slowdown expected to continue into the early part of this year.

Given the current economic conditions, it is anticipated that further gradual cuts will follow, potentially bringing interest rates down to 4% or even lower by year-end. However, the stagnant economy now faces heightened inflation risks from increased energy costs.

Inflation is projected to escalate significantly in the coming months, nearly reaching 4%, primarily driven by surging gas prices necessary to replenish storage facilities after a harsh winter. Although a recession is predicted to be narrowly avoided, the prospect of stagnant growth paired with mounting inflation resembles "stagflation."

Adding to the complexity, the Bank emphasizes a cautious approach to rate cuts due to substantial uncertainty surrounding President Trump's trade policies. Uncertainty extends beyond the policies themselves to their market impact and responses from other countries, including the UK. Notably, the recent revised forecast does not factor in US tariff policies.

The economic outlook is worrisome for the chancellor, with the economy stagnating since March and a technical recession narrowly evaded, leaving the risk of little to no growth persisting through the year.

The forecast for this year projects meager growth of just 0.75%, half of the previous estimate in November. Unemployment is anticipated to rise in the next two years, approaching 5%.

Reports from the Bank's business contacts indicate that concerns around the Budget are deterring investment, specifically referencing business asset relief, inheritance tax, and National Insurance.

Moreover, the Bank's assessment of the economy's long-term health reveals that productivity has been impacted by sickness, the pandemic, and Brexit, presenting challenging circumstances domestically amidst escalating global uncertainties.