Bank of England Cuts Rates to 4.5% but Slashes Growth Forecast

The Monetary Policy Committee (MPC) at the Bank of England has today confirm a base rate reduction of 0.25% to 4.5% pa.  This is lowest rate in 18 months (July 2023).

This rate cut is not about inflation though, this is about stopping the economy falling into recession.

Whilst both Chancellor Reeves and Prime Minister Starmer welcomed the rate cuts, claiming more money in ‘working people’s pockets’, this is in fact a real ‘kick in the teeth’ as the Bank has slashed UK growth forecasts for this year to 0.75% pa from 1.5% pa.

The Bank’s quarterly inflation report suggested that economic growth from July to September was 0% and has downgraded quarterly growth forecasts from 0.3% to 0.1% for the 4^th quarter 2024 and the 1^st quarter 2025.

Inflation is expected to rise but then fall back and as we move towards global recession (depending upon Trump tariffs and other economic factors).

Comment

Such is the concern for recession that 2 of the 9 MPC members voted for a huge 0.5% pa cut.

This may be better news for businesses that need to borrow to grow or service existing debt, but the reality is that companies are still ‘reeling’ from the huge National Living Wage increase added to the massive Employer’s National Insurance Contributions increase to 15% with the secondary earnings threshold (when employers pay NIC) lowered to just £5,000 pa that start in April 2025.

It is likely to be a difficult year for many and we expect both unemployment rates and the number of businesses closing to rise.