Bank of England Set to Cut Interest Rates Amid Economic Challenges

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The Bank of England's monetary policy committee is expected to reduce interest rates from 4.75% to 4.5%, marking the lowest level since June 2023. This decision, anticipated for Thursday, comes as inflation declines and growth forecasts for 2025 are likely to be downgraded from 1.5% to around 1%, according to economists.

Analysts, including James Smith from ING, indicated that a weaker growth outlook could threaten Chancellor Rachel Reeves’s budget plans. If the independent Office for Budget Responsibility (OBR) confirms that Reeves might exceed her fiscal targets, she may announce spending cuts when she addresses Parliament on March 26. Reeves has indicated that any necessary fiscal adjustments will be revealed after the OBR releases its updated forecast.

While potential rate cuts could stimulate the economy by lowering borrowing costs, some economists, such as Simon Pittaway of the Resolution Foundation, caution that a single quarter-point reduction may not significantly boost consumer confidence. The Bank will proceed cautiously, monitoring the implications of Reeves's October fiscal policies before considering further cuts.

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