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The Bank of England reduced interest rates by a quarter to 4.25%, but stressed that it was not a predefined path for new reductions, while it is preparing for the impact of the US President Donald Trump’s trade policy.
The BOE Monetary Policy Committee was divided into three ways on the decision, which was before the announcement of an US-UK trade agreement that London hopes to limit the price with British exports.
Although the decrease in Thursday quarters was expected, the insistence of the MPC to keep “a progressive and meticulous approach” for new rate reductions has encouraged traders to reduce their bets on additional rate decreases this year.
“Interest rates are not on the automatic pilot – they cannot be,” said Andrew Bailey, the governor of the BOE.
Merchants are now assessing two additional drops this year, with around 40% of a third – against 80% before the meeting according to the levels involved by the Swaps markets.
“This is a more divided MPC,” said Sanjay Raja, chief economist of the United Kingdom at Deutsche Bank. “The probability of sequential consecutive flow drops should drop to the back of this.”
Although a majority of five members of the MPC supported the drop in quarter -point, two favored a larger and a half reduction and two prices sought to stay at 4.5%.
“Overall, it’s a bellicist surprise,” said Francesco Pesole, FX strategist in ING, stressing that the chief economist of the BOE, Huw Pill, was one of those who voted without change.
The book exceeded $ 1.33 after the vote, putting it in positive territory for the day.
The yield over two golden years, which passes inversely at the price and reflects the expectations of interest rates, increased by 0.06 percentage points to 3.87%.
The BOE faced the impact on prices and economic activity of 40 billion pounds sterling in tax increases that Chancellor Rachel Reeves announced in the October budget, as well as the uncertainty produced by Trump’s pricing plans.
The central bank is also faced with the prospect of inflation increasing in the coming months, partly drawn by an increase in household bills. In a new set of forecasts published on Thursday, the inflation of BOE forecasts would represent 3.5% in the third quarter before returning to the target of the central bank in 2027.
This week’s meeting has been the first since Trump’s announcement last month of world rates, which, according to BOE, had helped to weaken global growth prospects – although it added that “the negative impacts on British growth and inflation are probably lower”.
British officials suggest that Thursday’s agreement with Washington could be limited in the scope and largely focused on automotive and steel industries. Bailey said that an agreement would be a new “welcome”. “This will help reduce uncertainty, and that’s important,” he said.
The BOE said that the growth of GDP underlying in the United Kingdom has slowed down since mid-2012, providing that the economy will develop by 1% this year and lower than expected 1.25% in 2026.
