The Bank of England Cuts Interest Rates: November 2024

Amidst the hubbub of Ex-President Donald Trump becoming President Elect Donald Trump, the Bank of England announced on Thursday 7^th November that they were cutting interest rates by 25 basis points. This is the second time this year that the MPC (Monetary Policy Committee) has cut interest rates, this time voting by a majority of eight to one. This cut came as data released showed inflation down to 1.7% in September, down from 2.2% in August. However, policymakers were quick to point out that the recent budget presented by Chancellor Reeves, which contained £70 Billion of extra spending (backed by higher taxes), would add 0.5% to headline inflation and 0.75% to GDP (Gross Domestic Product).

The single dissenting voice in the MPC was external economist Catherine Mann who voted for interest rates to be held steady at 5%. This was due to the Bank of England announcing that the increase in the national wage and National Insurance Contributions (NICs) could possibly be responsible for adding inflationary pressure in the form of higher prices and and reduced wages. Policymakers further implied that due to the budget, the cost of borrowing will decrease at a slower rate in 2025.

[A] gradual approach to cutting borrowing costs [is] required

Andrew Bailey, Governor of the Bank of England

Some experts have predicted that the slower pace in cutting interest rates will have a negative impact on many households. The Governor of the Bank of England, Andrew Bailey, in a separate statement cautioned that whilst borrowing cost would still be coming down in the future, the markets should not expect any rapidity in this area. Indeed, with President Elect Trump, who will be firmly ensconced in the White House next January, the Governor went on to say a “gradual approach to cutting borrowing costs was required” as US policies could also encourage inflationary pressure in the world economy.

Analysts now advise that that interest rates will probably not fall below 4% in 2025 .Some experts suggest that borrowers should lock in borrowing costs now with interest rates staying higher for longer, with the added influence of American policy having a negative impact on UK inflation. The Bank of England further announced that they expect inflation to be around 2.5% by close of business December 2024, up from the 1.7% figure in September, adding their oft repeated message that monetary policy would have to stay “restrictive for sufficiently long” to return inflation to 2% on a sustained basis.