Bank of England set to cut interest rate

Even if UK inflation remains high, it was generally anticipated that the Bank of England would lower its benchmark interest rate on Thursday to boost weak British economy.

The BoE is expected to lower borrowing prices by a quarter point to 4.50 percent at its first rate meeting of the year, according to the consensus of analysts.

“The BoE is likely to justify the move, even though inflation remains above (bank) target, due to a sluggish economy and a softening in the labour market in recent months,” said Kathleen Brooks, research director at XTB trading group.

In addition, the central bank will release its most recent inflation and growth projections, which may change in light of US President Donald Trump’s tariff conflict.

Trump, who has already placed tariffs on Chinese imports and threatened to do the same to the European Union, has said that Britain may not be exempt from duties on its exports to the United States. He has, however, postponed actions against Canada and Mexico while negotiations continue.

Many people are worried that these tariffs would lead to another surge in inflation, which could result in interest rate increases.

The US Federal Reserve last week left US borrowing costs unchanged but the European Central Bank cut eurozone rates.

Should the BoE reduce its rate Thursday, aiding mortgage holders but hurting savers as retail banks in turn pass on similar cuts to customers, it will be the central bank’s third reduction in six months.

The Bank of England cut in August for the first time since early 2020, from a 16-year high of 5.25 percent after UK inflation fell sharply.

It cut further in November.

Although it decreased to 2.5 percent in December, Britain’s annual inflation rate is still higher than the BoE’s aim of 2.0 percent.

In the meantime, Britain’s economy has stagnated, which has put strain on the Labour Party, which came to office in July in part because of its promise to boost output.

In an attempt to control inflation, major central banks started lowering interest rates that had been raised last year.

As a result of the Russia-Ukraine war, which reduced oil and food supplies, UK inflation reached over 11 percent in October 2022, the highest level in over 40 years.

Companies faced supply constraints also as they struggled to return to the pre-Covid rhythm of working.