The Bank of England (BoE) has cut interest rates by 25bps to 4.5% following the latest Monetary Policy Committee (MPC) meeting.
The FTSE rose to a record high on expectations of a cut this morning. The base rate is now at its lowest level since June 2023.
Meanwhile, the Bank also dropped its growth forecast for the UK economy from 1.5% to 0.75% in 2025.
Reacting to the decision, Waverton Investment Management portfolio manager James Carter said the cut gives chancellor Rachel Reeves some “breathing room” ahead of the March Budget.
“With the labour market continuing to cool, we see scope for the Bank of England to shift its focus from inflation to growth and exceed market expectations on rate cuts this year, delivering at least one per quarter. This should provide a much-needed tailwind for the economy, the government, and Gilts after a bruising end to 2024.”
See also: IA: Net retail outflows slow to £1.6bn in 2024
With the first interest rate cut of 2025 confirmed, attention has turned to the future path of interest rates over the course of the year.
Patrick O’Donnell, senior investment strategist at Omnis Investments, said the MPC remains in a difficult position.
“Uncertainty remains high, inflation remains above target, and forecasted to stay there near-term, but recent survey data shows that employment and growth data are soft. BoE models will project that more rate cuts are required to prevent a significant rise in unemployment and an inflation undershoot.
See also: PA Live Slicing The Regional Pie 2025
“In our view, the risks are tilted to more rate cuts being delivered than what is currently priced. However, the primary driver of markets in the near-term is going to be policy announcements and social media posts coming from the other side of the pond.”
William Marshall, CIO at Hymans Robertson, added: “This cloud of uncertainty is likely to lead to continued caution from the BoE. We expect the BoE to cut once a quarter until the summer, when there should be greater clarity in the data.”
This story was written by our sister title, Portfolio Adviser
