The Bank of England (BoE) cut interest rates on Thursday for only the second time since 2020, dropping the rate from 5% to 4.75%. The Monetary Policy Committee (MPC) voted decisively to implement the cut by an 8-1 majority; This was stronger support than expected in recent polls, where a 7-2 split was expected. The only dissident who advocated keeping rates constant was Catherine Mann.

BoE Governor Andrew Bailey touched on the bank’s cautious stance and underlined the need to keep inflation under control. “We must ensure that inflation remains close to target,” Bailey said, adding that the pace of future interest rate cuts would be gradual to avoid destabilizing the economy. He stated that if the economic landscape remains consistent with BoE forecasts, additional interest rate cuts may continue, albeit cautiously.

The rate cut follows Chancellor of the Exchequer Rachel Reeves’ last budget, which introduced significant tax rises, increased public spending and expanded borrowing. The BoE predicts that these measures could boost the UK economy by around 0.75% next year but provide a limited improvement in growth in the long term. The fiscal changes are also expected to add about 0.5 percentage points to peak inflation, which would delay the inflation rate’s return to the BoE’s 2 percent target by about a year.

The BoE’s approach contrasts with expectations for the European Central Bank, which some investors predicted would adopt a more aggressive rate-cutting path. But financial markets have already tempered their expectations for future Bank of England interest rate cuts; Forecasts for 2025 have now been reduced to two or three rate adjustments, instead of around four rate adjustments predicted before the budget. The BoE’s statement avoided mentioning broader global political factors, such as Donald Trump’s US election victory, that influence market forecasts of the US Federal Reserve’s interest rate cut approach.