Bank of England Cuts Interest Rates

Source Credit : CNBC

On Thursday, the Bank of England announced a reduction in interest rates, a decision that is expected to provide much-needed relief to borrowers, businesses, and consumers nationwide.

The central bank has recently decided to lower its key interest rate from 4.5% to 4.25% during its latest monetary policy meeting. This decision was made in response to lackluster economic growth and the uncertainty surrounding President Donald Trump's trade tariffs.

The rate cut was widely anticipated, particularly following a deceleration in price increases, as inflation eased to 2.6% in the twelve months leading up to March, down from 2.8% the previous month.

Five out of the nine policymakers of the Bank of England voted in favor of the interest rate cut. Two members advocated for a more substantial 50 basis-point reduction, while two others preferred to maintain the current interest rates.

The BOE said Thursday that uncertainty surrounding global trade policies had intensified since the imposition of U.S. tariffs and subsequent retaliatory measures. The “prospects for global growth have weakened as a result of this uncertainty and new tariff announcements, although the negative impacts on UK growth and inflation are likely to be smaller,” it added.

Numerous British households and businesses will appreciate the rate cut, as it will reduce the cost of borrowing money. However, savers who rely on higher interest rates for their savings accounts may face potential losses.

Kallum Pickering, the chief economist at Peel Hunt, stated in an interview with CNBC on Thursday that the response to rate cuts should follow a similar pattern to the textbook response seen with rate hikes. This includes slower growth, decreased activity in the housing market, and an increase in saving. It is important to recognize these trends and anticipate the potential impact of rate cuts on the economy.

“Business and consumers hold significant cash balances while debt-to-income ratios are at multi-decade lows. By easing the brakes on an economy full of pent-up potential, expect a positive response in investment, spending and housing activity,” he said.