Bank of England cuts Base Rate

The Bank of England has cut Base Rate by 25 basis points to 4.50%, as widely expected. Following the rate cuts in August and November, it has thus maintained the quarterly rhythm of monetary easing. What is surprising, however, is that two of the nine members of the Monetary Policy Committee, including the hawkish Catherine Mann, actually preferred a cut of 50 basis points.

The bank sees further progress in the fight against inflation, although it considers it possible that inflation could rise significantly in the short term. However, this will be booked as a one-off effect; the BoE does not expect second-round effects. Economic growth is below the expectations of the last inflation report from November. The bank's economists also do not expect growth to accelerate in the short term.

At the same time, the BoE warns of considerable uncertainty regarding economic and inflation developments. Global developments – not least the US's tariff plans – also play an important role here. Against this backdrop, the bank is sticking to its course of further gradual interest rate cuts.

We feel confirmed in our assessment that the market is underestimating the potential for further interest rate cuts. We still expect three rate cuts totalling 75 basis points at quarterly intervals. After today's decision, the risk is more that the central bank will not wait until May for the next step, but will already follow up at the next meeting in March.

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