BOE cuts bank rate by 25 bps to 4.50% as expected

February 06, 2025 at 12:00PM

Prior 4.75%

Bank rate vote 9-0 vs 8-1 expected (Dhingra and Mann actually voted in favour of a 50 bps rate cut*)

Domestic inflationary pressures are moderating, but they remain somewhat elevated

Will pay close attention to any consequent signs of more lasting inflationary pressures

GDP growth is expected to pick up from the middle of this year

There has been sufficient progress on disinflation in domestic prices and wages

A gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate

Will continue to monitor closely the risks of inflation persistence

Monetary policy will need to continue to remain restrictive for sufficiently long

Will decide the appropriate degree of monetary policy restrictiveness at each meeting

GDP estimated to have fallen by 0.1% in Q4 2024 (previously 0.0%)

GDP estimated to rise by just 0.1% in Q1 2025

CPI in one year’s time time seen at 3.0% (previously 2.7%)

CPI in two years’ time seen at 2.3% (previously 2.2%)

CPI in three years’ time seen at 1.9% (previously 1.8%)

Full statement

The pound has fallen further amid the mix of everything, with the bank rate vote being unanimous and softer growth projections by the BOE. That said, the latest forecasts also point to higher inflation and the latest wording in saying that they will take on a more “gradual and careful” approach is interesting. On the latter, I would take it to mean that they won’t be moving quickly in terms of policy easing i.e. no back-to-back moves.

I’m actually surprised the pound has fallen this much in reaction but we’ll see how it plays out once traders have more time to digest the news. GBP/USD is now down 1.1% to 1.2370 from around 1.2420 before the decision.

* This looks to be a plausible reason why the pound reacted quite strongly it would seem. Dhingra not so much but Mann jumping camps is definitely something interesting as it wasn’t too long ago that she was calling for the BOE to hold rates for longer.

This article was written by Justin Low at www.forexlive.com.