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The economy may be stuttering, unemployment may be rising, inflation may be above target. But even so, the Bank of England delivered mortgage payers some welcome Christmas cheer on Thursday.
The quarter percentage point cut in interest rates was far from a surprise – the vast majority of economists and investors had expected the Bank to cut rates down from 4% to 3.75%. But even so, for those still struggling with the cost of living, the decision will help lighten the load through the winter months.
And, if the pricing in financial markets is anything to go by, there will be more cuts to come next year with one or maybe two more cuts priced in by investors.
Money latest: What interest rate decision means for you
There was Christmas cheer, too, for the chancellor, as the Bank revealed that it expected the measures in her budget to reduce inflation by half a percentage point next year, thanks largely to her measures to reduce energy bills and freeze fuel duty.
This is a hefty reduction – and means that far from having to wait until 2027 to see inflation come down to its 2% target, the Bank thinks the target will be hit as soon as next year. In short, the Bank has offered its seal of approval to Rachel Reeves, who said repeatedly that she was hoping to craft a non-inflationary budget.
However, deeper questions still remain. To what extent is Britain’s low inflation a good news story – the fruit of clever monetary and fiscal policy – or something else? For there are some who worry that instead it bears all the hallmarks of economic slowdown. The slower the economy is growing, the less people spend and the lower inflation goes. And the Bank said it expected economic growth to drop to zero in the final quarter of the year.
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