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2025-12-18 20:15:04
[Bank of England Cuts Rates by 25 Basis Points as Expected, But Hints at Higher Threshold for Future Easing] ⑴ The Bank of England implemented the widely anticipated 25 basis point rate cut, but the Monetary Policy Committee indicated that the "easy" part of the easing cycle was over, causing the pound to strengthen. ⑵ The pound jumped 35 points against the dollar after the decision was announced, as the market digested this suspenseful decision and the statement hinting at a higher threshold for rate cuts in 2026. ⑶ This rate cut lowered the benchmark interest rate from 4.00% to 3.75%, after a "wait-and-see" pause in November. ⑷ The consensus vote was 5-4 in favor of the rate cut, with Governor Bailey shifting to the rate-cutting camp. The rate cut was fully priced in, and the result was in line with expectations. ⑸ Yesterday's Consumer Price Index (CPI) data was the main catalyst. Overall inflation fell sharply to 3.2%, lower than market forecasts and the central bank's own expectations. ⑹ October GDP data also unexpectedly contracted by 0.1%, indicating a weaker-than-expected economic recovery, with the unemployment rate climbing to 5%. (7) The central bank explicitly stated that with interest rates approaching neutral levels, further easing will become "more difficult to decide." (8) Bailey warned that future rate cuts have "more limited room for maneuver," and the future is unpredictable. (9) The central bank also warned that inflation will temporarily rise this month due to tobacco taxes and airfare increases, and expects overall inflation to remain above the 2% target until the second quarter of 2026. (10) Voting results: 5 to 4. Bailey, Lombardelli, Taylor, Dingela, and Briden voted for a rate cut; Green, Mann, Pierre, and Duggan voted to keep rates unchanged. (11) Staff predict fourth-quarter GDP growth of 0.0%, lower than the +0.3% forecast in November. (12) The fall 2025 budget is expected to reduce inflation by about 0.5 percentage points in April 2026, but increase it by 0.1-0.2 percentage points in 2027/2028. The data did not show a "rapid increase in idle capacity."
