{"id":1276,"date":"2025-08-08T10:54:23","date_gmt":"2025-08-08T10:54:23","guid":{"rendered":"https:\/\/blog.cedritech.com\/?p=1276"},"modified":"2025-08-08T10:54:23","modified_gmt":"2025-08-08T10:54:23","slug":"why-has-the-bank-of-england-cut-rates","status":"publish","type":"post","link":"https:\/\/blog.cedritech.com\/?p=1276","title":{"rendered":"\u00a0Why has the Bank of England cut rates?"},"content":{"rendered":"
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Faisal Islam<\/span><\/p>\n
Economics editor\u2022<\/span>@faisalislam<\/a><\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
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Andrew Bailey has acknowledged there is now more uncertainty about the pace of future rate cuts<\/figcaption><\/figure>\n
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So why has the Bank of England cut rates when inflation is well above its target of 2% and seems set to remain there?<\/p>\n

This vexed question is why the proceedings of the Bank’s nine member Monetary Policy Committee were so close and even involved an unprecedented second vote.<\/p>\n

The bottom line is that in the medium term the Bank sees the jobs market as exerting less upward pressure on inflation, because of a fall in the number of job vacancies and an increase in the jobless rate.<\/p>\n

But Bank governor Andrew Bailey and his team will have some explaining to do.<\/p>\n

Inflation remains high, and the very visible food price inflation figures look set to go up over the remainder of the year.<\/p>\n

So the ripples of inflation remain and there are risks around an expected further cut in interest rates in November.<\/p>\n

It is notable that both deputy governor Clare Lombardelli and chief economist Huw Pill voted to hold rates, against the judgement of the governor.<\/p>\n

Mr Bailey acknowledged to me that there was now more uncertainty about the pace of cuts, which it had previously been assumed would continue at once per quarter into next year.<\/p>\n

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UK interest rates cut to 4% in tight decision<\/h2>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
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What the interest rate cut means for you<\/h2>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
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The bigger question is why this series of cuts – five over the past year – has not boosted the economy more dramatically.<\/p>\n

The Bank expects second quarter GDP growth, which will be published by the Office for National Statistics next week, to be just 0.1%.<\/p>\n

However, thereafter it does predict that in the third quarter, economic growth will pick up to 0.3%, partly on the back of the prime minister’s trade deal with the US boosting what had been flagging exports.<\/p>\n

Obviously, the global backdrop has weighed down on the economy.<\/p>\n

The Bank points to the 24% drop in UK car exports to the US in May. That should now reverse.<\/p>\n

The notable economic factor has been the very high rate of savings in the economy, remaining at pandemic double digit levels as a proportion of the economy.<\/p>\n

Essentially, although pay has been rising faster than inflation, consumers have not felt confident enough to increase spending. This is partly an expected result of what were high interest rates.<\/p>\n

But the general negative vibe, not helped by what was a rather downbeat drumbeat from government last year, does appear to have held consumers back.<\/p>\n

If spending reverts to normal, and savings rates decline, then the Bank predicts a notable improvement in economic growth, eventually.<\/p>\n

But the lingering suspicion that inflation has not quite been defeated, which will be seen in upcoming food prices, remains.<\/p>\n

And the Bank clearly is picking up the impact of some government policies, from the rise in National Insurance for employers, and the national living wage.<\/p>\n<\/div>\n

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Faisal Islam Economics editor\u2022@faisalislam Getty Images Andrew Bailey has acknowledged there is now more uncertainty about the pace<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[39],"tags":[],"class_list":["post-1276","post","type-post","status-publish","format-standard","hentry","category-uk"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/posts\/1276","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1276"}],"version-history":[{"count":1,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/posts\/1276\/revisions"}],"predecessor-version":[{"id":1278,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=\/wp\/v2\/posts\/1276\/revisions\/1278"}],"wp:attachment":[{"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1276"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1276"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.cedritech.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1276"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}