Please find below the thoughts of the Evelyn Partners Investment Strategy team on today’s Bank of England MPC decision to cut interest rates by 25bps to 4.5%.. Received today – 06/02/2025
What happened?
As widely anticipated and long priced in, the Bank of England delivered the third quarterly 25 basis point cut of this easing cycle, taking the Bank Rate to 4.50%.
The vote was split 7-2, versus the 8-1 shown by the Bloomberg survey.
What does it mean?
Surprisingly, the voting split was significantly more dovish than expected with two members preferring to reduce the Bank Rate by 50bps to 4.25%, as opposed to the anticipated dissenter voting to hold. Even more extraordinary was that one of those calling for the bigger cut was Catherine Mann, previously seen as the biggest hawk.
Weaker than expected GDP growth since the November Monetary Policy Report was noted, along with declining business and consumer confidence indicators. This includes the unhelpful mix of weaker hiring intentions and higher price expectations (to 3.7% in 3Q25), driven by global energy costs and regulatory price changes.
As to the tone of the guidance there was little change with progress on the inflationary front being acknowledged ‘while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures’. The bank retained full flexibility emphasising ‘the Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.’
Given the complicated mix of colour from the meeting, market reaction was muted.
Bottom Line
The BoE lowered interest rates to 4.50%. The UK swap market is pricing three further cuts through 2025. Given the weakening growth outlook for the year, it will be interesting to see if committee members begin to look through inflation concerns resulting in the pace of quarterly rate cuts picking up.
Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.
Marcus Blenkinsop
6th February 2025
What happened?
As widely anticipated and long priced in, the Bank of England delivered the third quarterly 25 basis point cut of this easing cycle, taking the Bank Rate to 4.50%.
The vote was split 7-2, versus the 8-1 shown by the Bloomberg survey.
What does it mean?
Surprisingly, the voting split was significantly more dovish than expected with two members preferring to reduce the Bank Rate by 50bps to 4.25%, as opposed to the anticipated dissenter voting to hold. Even more extraordinary was that one of those calling for the bigger cut was Catherine Mann, previously seen as the biggest hawk.
Weaker than expected GDP growth since the November Monetary Policy Report was noted, along with declining business and consumer confidence indicators. This includes the unhelpful mix of weaker hiring intentions and higher price expectations (to 3.7% in 3Q25), driven by global energy costs and regulatory price changes.
As to the tone of the guidance there was little change with progress on the inflationary front being acknowledged ‘while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures’. The bank retained full flexibility emphasising ‘the Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.’
Given the complicated mix of colour from the meeting, market reaction was muted.
Bottom Line
The BoE lowered interest rates to 4.50%. The UK swap market is pricing three further cuts through 2025. Given the weakening growth outlook for the year, it will be interesting to see if committee members begin to look through inflation concerns resulting in the pace of quarterly rate cuts picking up.
Please continue to check our blog content for the latest advice and planning issues from leading investment management firms.
Marcus Blenkinsop
6th February 2025