LONDON (Reuters) – The Bank of England cut its main interest rate by 0.25 percentage points to 4.25% on Thursday, though with an unexpected three-way split among policymakers as U.S. President Donald Trump’s tariffs weigh on global economic growth.
The BoE said it thought the increase in tariffs by the U.S. and other countries would weigh somewhat on British economic growth and push down on inflation in Britain but it stressed how unclear the outlook remained.
MARKET REACTION:
STOCKS: The benchmark FTSE 100 index pared gains and was last up 0.3%.
FOREX: Sterling rose against the dollar after the decision, last up 0.2% to $1.33175.
BONDS AND MONEY MARKETS: Two-year gilt yields jumped and were last 7 bps higher at 3.88%. Traders were pricing in around 59 bps of BoE rate cuts by year-end.
COMMENTS:
PHILIP SHAW, CHIEF ECONOMIST, INVESTEC, LONDON:
“It’s no surprise that the committee as a whole voted to bring rates down, what perhaps was surprising that two members including chief economist Huw Pill preferred to leave rates unchanged.”
“That may reduce speculation as to a possible back-to-back reduction at next month’s meeting. Our base line case remains that we will see the next cut in August.”
JULIUS BENDIKAS, EUROPEAN HEAD OF ECONOMICS AND DYNAMIC ASSET ALLOCATION, MERCER, LONDON:
“The Bank’s Monetary Policy Committee faces a tricky balancing act with inflation and wages still elevated. Global trade issues are likely to put downward pressure on both growth and inflation. We expect the Bank to keep cutting rates, reaching 3.5% or lower by 2026, as price and wage inflation moderate further.”
(Reporting by Reuters Markets Team, Compiled by Yoruk Bahceli, editing by Alun John)
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