Bank Of England Cuts Key Rate By 25 Bps Amid Trade Tariff Concerns

(RTTNews) - The Bank of England reduced its interest rate by a quarter-point on Thursday, as policymakers judged that higher trade tariffs warrant such action amid slowing inflation.

In a three-way split, the Monetary Policy Committee, governed by Andrew Bailey, lowered the bank rate to 4.25 percent. This was the fourth such reduction since last August.

Among nine members of the MPC, five voted in favor of 25 basis point reduction. Two members, Swati Dhingra and Alan Taylor, sought a bigger 50 basis point cut. External member Catherine Mann and Chief Economist Huw Pill preferred to maintain the bank rate at 4.50 percent. They said holding the rate at this meeting would ensure that monetary policy remain sufficiently restrictive to weigh against stubborn inflationary pressures.

The MPC noted that changes in global trade policies will impact the economy. Developments in global trade are likely to reduce UK activity and create further risks to the downside.

"Although the current impact of the global trade news should not be overstated, the news was sufficient for those members to judge that a reduction in Bank Rate was warranted," the minutes showed.

The committee said the progress made on reducing inflationary pressures helped to cut interest rates again.

A gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate, the bank said.

Due to increases in energy prices, inflation is likely to rise to 3.7 percent by September, the bank said. Although inflation will increase temporarily, it will fall back to the 2 percent target this year, policymakers observed. In order to ensure that inflation stays low, the MPC said it will judge carefully how far and how fast interest rates should be cut.

Governor Bailey welcomed the UK-US trade deal, which is expected to cut some tariffs.

ING economists said despite the rate cut, the BoE failed to endorse market expectations for faster rate cuts. They expect BoE to keep cutting rates once per quarter this year, which would see its next move in August.

However, economists said they will not fully rule out a quicker pace of cuts if services inflation falls faster than the BoE currently anticipates.

Confederation of British Industry Deputy Chief Economist Alpesh Paleja said disinflationary risks have intensified, US tariffs pose fresh headwinds to growth, global oil prices have decreased and the domestic labor market is cooling. Paleja expects the MPC to maintain a cautious stance.