Bank of England Cuts Rates to 4.25% With More to Follow

The Monetary Policy Committee (MPC) at the Bank of England has today cut interest rates by 0.25% to 4.25% pa.  Interest rates were last cut in February and the MPC indicated that there we likely to be more rate cuts later this year.

The vote to cut was close at 5:4 by members of the MPC with lowering inflation over the last 2 years, currently at 2.6% pa, cited as one of the reasons for the reduction.  Two members voted for a bigger 0.5% pa cut and 2 voted for rates to be held at 4.5% pa, so in reality 7 out of 9 voted for a cut.

The MPC also cited uncertainty for global trade policies due to import tariffs by the United States and with other nations potentially responding with ‘tit for tat’ tariffs meaning we could be heading for global economic slowdown, another reason to cut rates to ease pressure on businesses and in anticipation of even lower inflation.

Meanwhile, in the USA, the Federal Reserve held interest rates with the 4.25% to 4.5% pa range and suggested that this position may hold pending USA tariff and trade uncertainty.

Comment

We agree with a 0.25% cut.  0.5% may have been too much given tariff uncertainty and therefor unpredictability for the economy, so the Bank should remain on its toes and be able to react either way rather thank ‘shock’ higher or lower rate changes to deal with uncertainty.

Stable management of interest rates offers both business finances and mortgage borrowers some certainty and we do expect further cuts this year.

We expect the FTSE 100 to remain steady as a rate cut was expected but domestically focussed companies listed in FTSE 250, FTSE 350 and FTSE All Share should climb.