The Bank of England’s Monetary Policy Committee (MPC) has trimmed interest rates by 25 basis points to 4.25% at today's meeting, in line with market expectations.
This decision reflected “continued progress in disinflation, though with risks to inflation remaining in both directions”, according to the monetary policy report.
Zara Nokes, global market analyst at JP Morgan Asset Management, said: “The economic engine is sputtering as the UK contends with a double whammy of domestic tax increases alongside trade headwinds emanating from Washington. Business confidence has deteriorated sharply as a result and, crucially, cracks are now showing in the labour market.”
However, this was not a unanimous vote, with a three-way split in the voting patterns. Five members of the MPC voted in favour of the 25bps cut, with two other members voting in favour of a more aggressive cut, while two others opted to hold rates.
Lindsey James, investment strategist at Quilter, said today’s move was widely anticipated by markets. “Investors are betting on three further rate cuts this year as rising risks to growth look likely to supersede inflationary threats in the coming months,” she added.
However, George Brown, senior economist at Schroders, believes the Bank of England has far less scope to cut rates than the market currently expects because the UK faces significant capacity constraints.
With inflation set to rise again later this year, due to “disappointing productivity and sticky wage growth”, the bank will likely only take interest rates “as low as around 4% this rate-cutting cycle”, he predicted.
Indeed, the bank explained it would favour a “gradual and careful approach” to monetary policy moving forward, pointing to slowing GDP growth, the potential for rising inflation due to energy prices and volatility in global markets.