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2025-12-18 20:05:10
[Bank of England Takes Cautious Step in Rate Cut Amid Divergence, Future Path Remains Uncertain] ⑴ On Thursday, the Bank of England's Monetary Policy Committee voted by a narrow 5-4 to cut the benchmark interest rate from 4.0% to 3.75%, marking the fourth rate cut in 2025. ⑵ Governor Andrew Bailey changed his stance, voting in favor of the rate cut, thus disrupting the balance within the committee. ⑶ Bailey stated that he still believes interest rates are on a gradual downward path, but with each rate cut, how far they can go will become a more difficult decision. ⑷ Bank staff lowered their economic growth forecasts, now expecting zero GDP growth in the fourth quarter of 2025, a significant downward revision from the 0.3% quarter-on-quarter growth forecast last month, although they believe the potential quarterly growth rate is around 0.2%. (5) The central bank noted that inflation is now expected to fall back to the target level more quickly in the near term. The recent fiscal budget may reduce inflation by about 0.5 percentage points by April 2026, but may subsequently push it up slightly by 0.1-0.2 percentage points in 2027 and 2028. (6) Specific forecasts show that inflation is expected to ease to around 3% in the first quarter of 2026 and get closer to the 2% target in the second quarter, but may temporarily rise in December 2025 due to tobacco taxes and airfare factors. (7) The central bank believes that budgetary measures may increase GDP by about 0.1%-0.2% over the next few years, but fiscal tightening three years later will be a drag. (8) The Monetary Policy Committee emphasized in its statement that "judging further policy easing will become more difficult," and noted that uncertainty about the estimate of the neutral interest rate may complicate future easing decisions. (9) Although the data is generally encouraging, the Committee believes that labor market data largely do not show a rapid increase in spare capacity, and inflation risks remain two-way. (10) This dovish but cautious rate cut highlights the dilemma the Bank of England faces in balancing weak economic data with inflation levels that are still higher than its peers, and foreshadows a very slow and uncertain pace of future easing.
