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February 06, 2025BANK OF ENGLAND MONETARY POLICY The Monetary Policy Committee (MPC) of the Bank of England voted to lower the Bank Rate by 25 basis points to 4.50%.
Disinflation has progressed over the past two years as fading external shocks and tight monetary policy limited second-order price pressures. Inflation expectations are returning to normal, allowing for lower interest rates. UK inflation has been close to the Bank's target of 2% since mid-2024 (2.5% in Q4 2024), but the path of disinflation continues to be volatile. Inflation is expected to rise again in 2025 due to higher energy prices before returning to the target later in the year.
UK GDP growth has been weaker than anticipated in November Monetary Policy Report. The labour market has softened and is more balanced while productivity growth has underperformed relative to expectations. Although demand growth has slowed in recent months, capacity growth has been weak and left only a small margin of slack in the UK economy.
In the MPC's judgment, the progress on disinflation has been sufficient to reduce interest rates, but only gradual and careful withdrawal of monetary restraint is warranted in the medium-term. The Bank of England's outlook does not incorporate any information about rapidly-evolving shifts in US trade policy, so this constitutes an additional risk to the outlook.
The next scheduled monetary policy meeting will be on March 20, 2025.
Source: Bank of England, Monetary Policy Report, February 2025
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