The Bank of England (BoE) announced a reduction in the Bank Rate to 4.75%, marking the second cut in its current easing cycle. This move comes as a cautious approach to the rate path, especially considering the recent fiscal stimulus.
According to the Monetary Policy Committee (MPC), the Autumn Budget’s policy measures are expected to enhance GDP by 0.75% within a year and contribute an additional 0.5% to the Consumer Price Index (CPI) at its peak.
The MPC has revised its short-term growth and CPI forecasts upward, signaling that there is no longer any spare capacity in the UK economy for the coming year.
Furthermore, the MPC has indicated a preference for gradual easing if economic developments align with their expectations, setting a higher threshold for any further rate cuts in December.
However, the MPC did leave a narrow possibility open for a rate reduction in December, contingent on significant negative developments in domestic prices and wages that would imply a quicker return of inflation to the target rate.
The upcoming reports on growth, inflation, and the labor market will be crucial in assessing the validity of the BoE’s forecasts and could influence the MPC’s decision-making process in the lead-up to the next meeting in December.
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