Interest rate cut but further easing is ‘close call’ – Daily Business

The Bank of England has cut interest rates from 4% to 3.75%, reducing the cost of borrowing to its lowest level in almost three years.

It cautioned that “further policy easing will become a closer call” as the monetary policy committee remains sharply divided.

Members voted by a majority of 5–4 to reduce bank rate. Four voted for no change, pointing to lingering concerns about stubborn inflationary pressures.

Consumer Prices Index inflation has fallen since the previous meeting, to 3.2%. Although above the 2% target, the Bank said it is now expected to fall back towards target more quickly in the near term.”

The Bank said “the risk from greater inflation persistence has become somewhat less pronounced since the previous meeting, while the risk to medium-term inflation from weaker demand remains.

“On the basis of the current evidence, Bank Rate is likely to continue on a gradual downward path. But judgements around further policy easing will become a closer call.”

Bank governor Andrew Bailey cautioned against expectations of early cuts in the new year.

“Measures in the Budget should reduce inflation further in the near term. The key question for me now is the extent to which inflation settles at the 2% target in an enduring way. Slack has continued to accumulate in the economy,” he said.

“While I see scope for some additional policy easing, the path for Bank Rate cannot be pre-judged with precision, recognising in part the more limited space as Bank Rate approaches a neutral level.”

The Bank noted that measures announced in the Budget, in particular one-off reductions to regulatory costs levied on households’ energy bills, and changes to fuel duty, were likely to lower CPI inflation in April by around 0.5 of a percentage point.

“This Budget news, in combination with other news in recent CPI data and with some downward moves in sterling oil and gas futures curves since November, had led Bank staff to lower their expectation for CPI inflation to closer to 2% in 2026 Q2.”