Bank of England cuts rates by 0.25% amid Labour’s budget impact

The Bank of England reduced interest rates by 25 basis points on Thursday, even as Labour’s expansive budget announcement complicates the prospects for future policy easing.

The decision to lower the bank’s main rate to 4.75% was supported by an 8-1 vote among policymakers.

This marks the central bank’s second rate cut this year, following the start of its easing cycle in August.

Financial markets had already anticipated a 97% likelihood of this quarter-point cut at the November meeting.

However, analysts have cautioned that further cuts might be postponed due to the government’s new tax-and-spend budget.

Investors are now eager for insights from Governor Andrew Bailey and other bank officials on their updated economic projections, especially in light of the budget and the U.S. presidential election.

Goldman Sachs noted last Thursday that “the outlook for stronger growth in 2025 could lessen the urgency for continuous rate cuts in the short term.”

After pausing rate changes at their September meeting, policymakers indicated a “gradual approach” to easing. However, a significant drop in inflation to 1.7% and slowing wage growth had led economists to anticipate a quicker pace of cuts before the budget was unveiled.

These expectations shifted after U.K. Finance Minister Rachel Reeves introduced £40 billion ($51.41 billion) in tax increases and revised the U.K.'s debt guidelines. The Office for Budget Responsibility (OBR) has warned that these measures could lead to higher short-term growth and inflation.