Interest rates cut amid concerns of weaker growth
The Bank of England has cut interest rates, reflecting weaker growth forecasts and lower levels of inflation.
The widely-expected move has brought the rate down to 4.5%, and more cuts are expected, although more significant moves are likely to only be in the second half of the year.
The quarter-point cut follows reductions in August and November last year, as interest rates edge down from its 16-year high of 5.25%.
Rate-setters on the Bank’s Monetary Policy Committee voted 7-2 to cut rates, with two of the seven in favour of a half-point cut. Surprisingly, Catherine Mann – who had been expected to vote against a cut – was one of the two to push for greater action. Her reticence was based on inflation pressures, which suggests she no longer sees it as a significant concern.
The MPC said: “There has been substantial progress on disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations.
“That progress has allowed the MPC to withdraw gradually some degree of policy restraint, while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures.”
However, with inflation at 2.5% – above the Bank’s 2% target and with nervousness of global inflationary pressures – the MPC expects to be cautious in the short-term.
The MPC added: “Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”
Neil Rudge, chief banking officer for commercial at Shawbrook, said: “The decision to cut the base rate to 4.5% will be welcomed by the business community, which has been on the receiving end of a string of difficult economic changes in the past year. A stagnant economy, the looming increase to NIC for employers and the potential for tariff induced inflation means SMEs will have lots on their minds in the coming months.”
Director of policy and insight at East Midlands Chamber, Richard Blackmore, said: “For businesses looking to borrow, a slight drop in the interest rate may bring some comfort, especially against the context of growth prospects looking sluggish, with the Bank of England revising downward its forecast and so many other high costs to contend with this year.
“Price pressures remain high, with inflation the second highest concern of East Midlands businesses in our Quarterly Economic Survey after corporate taxation. With firms needing to foot additional cost for higher National Insurance contributions and an increased national minimum wage from April, it’s essential that political leaders prioritise measures that support business.”
