Kavan Choksi UK Talks About Bank Of England Interest Rate Cuts

Kavan Choksi UK

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Even though core inflation in the United Kingdom is a bit higher than in many other developed nations, it is trending down. Kavan Choksi UK mentions, that underlying price pressures, apart from one-time tax shocks, are easing, particularly in services. On the basis of medium-term inflation expectations, the credibility of the BoE or Bank of England is intact. At the moment, the BoE base rate sits at 4.75% subsequent to two cuts in August and November. Just before Christmas, the Monetary Policy Committee (MPC) voted six to three to hold rates. Financial markets widely expect the BoE to Bank cut interest rates at its first Monetary Policy Committee meeting of 2025, which is on February 6th.

Kavan Choksi UK briefly discusses Bank Of England interest rate cuts

The Bank of England base rate is basically the UK’s official borrowing rate for banks and impacts the interest rates they offer customers.  This interest rate impacts the money of all UK citizens, no matter whether they are a borrower, a saver or running a business. In certain cases, the BoE may encourage people and businesses to save, while other times it might want them to borrow and spend. The BoE’s typical response to rising inflation is to increase the UK’s official interest rate.

The United Kingdom’s inflation data for the 12 months to December 2024 showed an increase to the Consumer Price Index (CPI) of 2.5%, which means that the prices in the country are still rising at a rate higher than the 2% target of the BoE.  However, overall, the chances of an interest rate cut by the Bank of England on February 6th is quite high, due to low economic growth and the end of a “tight” labour market. In case the BoE does cut the interest rates in February, there is a good chance that equity markets shall rise in optimism about the BoE’s fight against inflation. Lower interest rates free up money in the real economy that can be used for spending. Both investors and businesses consider that a good thing.

Kavan Choksi UK mentions that February’s MPC meeting shall be accompanied by the release of the Bank of England’s quarterly Monetary Policy Report. This report typically provides a more comprehensive overview of its economic outlook. It could offer additional insights into the BoE’s expectations for the year ahead. Such information has to be closely monitored by traders and investors as it provides clues about the Bank’s future policy direction, thereby making it inherently sensitive to market movements. In its previous Monetary Policy Report, which was published alongside the interest rate cut in November 2024, the Bank of England indicated plans to further lower interest rates, within reasonable limits. If inflation stays stable and low, then the BoE may reduce interest rates further throughout 2025. However, it also has to be careful not to cut interest rates too quickly or too much

The Bank of England was made independent of government in 1997. The policy of independence essentially means that the BoE can set interest rates without interference from central government. This model follows the one used by the US Federal Reserve that sets interest rates without input from The White House.

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