Bank of England opens door to December rate cut as it signals inflation has peaked

3 hours ago7 min read1 comments

The Bank of England has pivoted decisively, signaling a potential shift in monetary policy by opening the door to an interest rate cut as early as December, a move that sent ripples through the City of London and global markets. In a highly anticipated decision, the Monetary Policy Committee held the Bank Rate steady at 4% for a second consecutive meeting, but the real story was buried in the voting tally and the accompanying forward guidance.The five-four split among policymakers reveals a central bank on the cusp of a significant turning point, acknowledging that the fierce inflationary tide that has battered the UK economy has finally crested. This delicate balancing act unfolds against the fraught backdrop of Chancellor Rachel Reeves's impending make-or-break budget, less than three weeks away, creating a potent interplay between fiscal and monetary policy that will define Britain's economic trajectory for 2025.The Bank's nuanced communication suggests a cautious optimism, attempting to thread the needle between declaring victory over inflation—which had soared to its highest levels in a generation—and acknowledging the persistent weak growth that now threatens to tip the economy into a more prolonged stagnation. Market participants immediately began pricing in a higher probability of a December cut, with gilt yields falling and the pound softening modestly against the dollar, a classic reaction to dovish central bank signaling.This moment echoes historical precedents, such as the Fed's pivot in 2019 or the ECB's cautious easing cycles, where central banks have had to navigate the transition from fighting inflation to supporting growth without triggering a resurgence in price pressures. The Bank's challenge is compounded by structural factors, including tight labor markets and ongoing geopolitical tensions that could disrupt supply chains anew.Analysts are now scrutinizing every incoming data point, from the next Consumer Price Index release to PMI figures, for confirmation that the disinflationary trend is entrenched. The decision places immense pressure on the upcoming budget; a stimulative fiscal package from Reeves could give the MPC the confidence it needs to ease, arguing that growth support is now the paramount concern.Conversely, a misstep in the budget that re-ignites inflation expectations could see this window for a rate cut slam shut. For households and businesses, the implications are profound.A reduction in borrowing costs would offer relief to millions with variable-rate mortgages and loans, potentially unlocking consumer spending and business investment that has been stifled by the highest interest rates in over a decade. However, the Bank's warning about weak growth serves as a sobering reminder that the path to a soft landing remains narrow and fraught with risk, a narrative familiar to students of economic cycles but now playing out in real-time on Threadneedle Street.

#Bank of England

#interest rates

#inflation

#monetary policy

#budget

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