The Bank of England (BoE) has reduced interest rates, a decision reached amidst notable disagreement among its policymakers. Four of the nine members of the Monetary Policy Committee (MPC) expressed concerns about persistent high inflation and initially sought to maintain borrowing costs at their existing levels. This division led to the MPC holding two votes, a rare occurrence since its inception in 1997, to reach a final decision.
Faced with the dual challenge of an inflation rate projected to soon double the BoE’s 2 per cent target and increasing job losses, Governor Andrew Bailey, alongside four other colleagues, supported lowering the Bank Rate from 4.25 per cent to 4 per cent. This decision was made after an initial vote resulted in a split of 4-4-1, with external MPC member Alan Taylor initially advocating for a more aggressive half-point cut.
Governor Bailey emphasised the importance of caution in lowering the Bank Rate, stating, “It remains important that we do not cut Bank Rate too quickly or by too much.” He also noted that the anticipated rise in inflation was expected to be temporary. The Governor affirmed the bank’s readiness to adjust its course should the balance of risk to the medium-term inflation outlook shift.
The four MPC members who favoured keeping rates unchanged included Deputy Governor for Monetary Policy, Clare Lombardelli, marking her first departure from the majority decision. Chief Economist Huw Pill also voted to maintain the Bank Rate at 4.25 per cent, highlighting the depth of concern within the committee regarding inflationary pressures.
