The Bank of England (BoE) has announced a 0.25% cut to interest rates to bring the central bank’s base rate down to 4.25%.
The latest move is the fourth cut to the base rate since the BoE started to bring interest rates down last August from a recent peak of 5.25%.
At its meeting this week, the BoE’s Monetary Policy Committee (MPC) voted by a majority of five to four in favour of a 0.25% reduction. Two members had voted for a larger cut of 0.5%, while the other two members were in favour of holding rates at 4.5%.
In the MPC’s report published today, it stated that “monetary policy is not on a pre-set path”, and said the Committee would remain “sensitive to heightened unpredictability” in the economic environment.
While the annual CPI inflation rate fell from 2.8% in February to 2.6% in March, the MPC warned that increases in energy prices are still likely to drive up CPI inflation from April onwards, to 3.5% during Q3, before coming down again later in the year.
Investment manager at Wealth Club, Nicholas Hyett, commented that with inflation falling, and strong economic growth in February, the BoE has a “remarkable freedom of movement at the moment”.
“That’s reflected in the MPC vote split this time round – ranging from 4.0% to 4.5%,” Hyett added. “Ultimately though, the Committee has, as expected, used its flexibility to clear the way for a soft landing after a period of moderate but stubbornly rising inflation at the end of last year.
“The Government and markets will welcome a little bit of extra padding. Changes to the national living wage and employer national insurance contributions only came into effect in April, and have the potential to spark an uncomfortable combination of rising prices and weaker labour markets.
“So far the economy has dealt with that looming speedbump surprisingly well, but some defensive driving from the Bank is no bad thing in an unpredictable market where key players have been known to suffer from the occasional bit of road rage.”
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