Published February 7, 2025 5:40 1m est
by Richard F. Cason,
Founder & CEO NewsMovesMarketsForex®
Editor in Chief,
NewsMovesmarketsForex
Key Issues-
- BOC cut interest rates by 0.25 bps to 4.5 percent on February 6, 2025, by MPC 7-2 vote
- Global energy costs are expected to push inflation back up to around 3.7%
- GDP growth has been slower than anticipated, and both business and consumer confidence have taken a hit.
- Decision to cut the Bank Rate to 4.5%, the British pound (GBP) reacted with a noticeable depreciation in value.
- Labor market shows signs of balance, productivity growth is lagging behind expectation
In a recent meeting that wrapped up on February 5, 2025, the Bank of England’s Monetary Policy Committee (MPC) made a significant decision: they voted 7-2 to lower the Bank Rate by 0.25 percentage points, bringing it down to 4.5%.
This choice reflects the committee’s ongoing efforts to manage inflation, which is currently at 2.5%. The MPC aims for a stable economy with a 2% inflation target. recent years, and it is 
now above the Bank of England’s target of 2%.
Over the past two years, they’ve worked hard to reduce inflation, especially after facing external challenges.
Their efforts are showing results, allowing them to ease some of the tight monetary policies while still keeping a careful eye on inflation pressures.
Despite some encouraging signs, like moderating domestic inflation, there are still concerns.
Global energy costs and GDP Growth
Global energy costs are expected to push inflation back up to around 3.7% by the third quarter of 2025.
The committee remains cautious, as they expect inflation to eventually return to the 2% target, but they will be vigilant for any signs of lasting inflation.
The economy is facing a mixed bag of challenges. GDP growth has been slower than anticipated, and both business and consumer confidence have taken a hit.
While the job market shows signs of balance, productivity growth is lagging behind expectations.
Currency Impact and The Canadian Dollar
Following the Bank of England’s decision to cut the Bank Rate to 4.5%, the British pound (GBP) reacted with a noticeable dip in value.
Investors often interpret interest rate cuts as a sign that the central bank is trying to stimulate the economy, which can lead to concerns about inflation and economic growth.
In the immediate aftermath of the announcement, the pound weakened against major currencies, such as the US dollar and the euro.
Traders were cautious, weighing the implications of the rate cut against the backdrop of ongoing inflationary pressures and slower-than-expected GDP growth.
However, some analysts noted that the rate cut was a strategic move aimed at maintaining economic stability in the long term.
As the MPC continues to monitor inflation and economic conditions, there is potential for the pound to recover if economic indicators show improvement.
Overall, while the initial reaction was a decline in the pound’s value, the market’s longer-term response will depend on upcoming economic data and the effectiveness of the MPC’s policies in achieving its inflation targets.
Additionally, businesses that rely on borrowing to invest and grow may also feel the impact of the increase in interest rates.
The cost of borrowing will go up, which could limit their ability to expand and create jobs. It is important for the government to work with businesses to ensure that they are able to navigate this change in the economic playing field.
BOC Future Plan For Economic Stability
Amid all these economic moving parts and the slight slowdown in demand, the economy still has some room to grow.
With these factors in mind, the MPC decided it’s time for a careful reduction in the Bank Rate to support ongoing progress towards their inflation goals.
They believe that by taking this gradual approach, they can navigate the uncertainties around inflation and the economy’s supply and demand dynamics.
The committee will continue to monitor the situation closely, adjusting monetary policy as needed to ensure inflation returns to the desired target sustainably.
Their commitment is clear: they will remain vigilant and responsive to economic changes, ensuring stability for everyone.
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