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2025-12-18 20:23:23
[Policy Shift: Bank of England Takes Key Step in Rate Cut, But "Neutral Interest Rate" Ambiguity Limits Future Scope] ⑴ At its December Monetary Policy Meeting, the Bank of England voted 5-4 to cut its benchmark interest rate by 25 basis points to 3.75%, the first rate cut since August, bringing the rate to a near three-year low. ⑵ This rate cut reflects the majority opinion of the committee members that inflation is cooling at a sufficiently rapid pace, providing conditions for further policy easing in 2026. ⑶ However, the meeting minutes and Governor Bailey's statements indicate that the central bank is highly cautious about the future policy path. ⑷ Bailey explicitly pointed out that while interest rates are still on a gradual downward path, how far they can go with each rate cut becomes more uncertain. ⑸ The central bank adopted new wording, emphasizing that as interest rates gradually approach the "neutral interest rate" (i.e., a level that neither stimulates nor inhibits the economy), future decisions on further easing will require more careful consideration. (6) This statement reveals the core concern within the central bank: balancing the downward trend in inflation with an uncertain neutral interest rate level, indicating that future interest rate cuts will be more cautious and data-dependent.
