The Bank of England is poised to cut interest rates in a boost for Chancellor Rachel Reeves amid ongoing economic turbulence. The bank’s Monetary Policy Committee (MPC) is expected to reduce the base rate by 0.25% to 4% on Thursday – marking the fifth reduction since last August.
Experts think the easing of monetary policy could be prompted by the worrying slowdown in the UK jobs market and stagnant economic growth. But while the cut would mean lower mortgage payments for some homeowners and encourage firms to borrow to invest, it also risks boosting inflation, which unexpectedly jumped to 3.6% in June, as well as hurting savers.
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Official data from the Office for National Statistics (ONS) showed that the rate of UK unemployment increased to 4.7% in the three months to May, the highest level for four years.
Sanjay Raja, senior economist for Deutsche Bank, said the economy has been “weaker than the MPC anticipated” since it last published a Monetary Policy Report in May.
Matt Swannell, chief economic advisor to the EY Item Club, also said a 0.25% cut on Thursday was “almost certain” amid a “sluggish” economy.
“With the MPC balancing signs of fragility in the labour market against evidence of lingering inflationary pressure, the committee will likely signal that further gradual interest rate cuts remain appropriate,” Mr Swannell predicted.