Bank of England Cuts Interest Rates

LONDON (Reuters) – The Bank of England reduced interest rates on Thursday for only the second time since 2020, indicating that future reductions are likely to be gradual amid higher inflation and growth following the new government’s first budget.

Bank of England Officials' Statements

Governor Andrew Bailey on U.S. Election Results

> "We’ll watch it very closely… I’m not going to make any presumptions about what will happen, because I don’t think that’s either a) consistent with our policy remit or b) wise. Let’s see what happens."

He emphasized the importance of understanding future U.S. policies and their potential effects on the UK economy without entering into speculation:
> "We work with all U.S. administrations … We will look forward to working with the new U.S. administration. We worked with the previous Trump administration."

On the Path of Interest Rates

Bailey noted:
> "There is a world in which we will move gradually… we have made more progress on disinflation than we expected to, and that is very good news."

On the October 30 Budget

Bailey provisionally expects the budget measures to boost GDP by around three-quarters of a percent at their peak in a year:
> "This reflects stronger government consumption and investment, more than offsetting the impact of higher taxes."

He added that fiscal policy is expected to tighten, but the budget changes may reduce the margin of spare capacity in the economy.

Impact on Interest Rates

Regarding interest rates, he stated:
> "I don’t think that it’s sensible to conclude that the path of interest rates will be particularly different."

On Inflation

Bailey said:
> "We still need to see services price inflation come down more broadly to keep headline consumer price inflation at the 2% target."

On the Labour Market

He added that developments in the UK labour market remain crucial for assessing inflationary pressures:
> "There are mixed signals from the data."

On Global Risks

Finally, he warned about the fragmentation of the world economy:
> "There are a lot of risks attached to the fragmentation… it’s too early to judge."