"Today's base rate cut suggests then that the central bank has decided to prioritise protecting and enhancing financial stability as part of its dual mandate rather than keep inflation in check. The Federal Reserve has been showing the way ahead for the Bank of England, having cut rates recently because of similar concerns about the unemployment rate and stuttering consumer spending, despite inflation remaining above target. And that's even with the US economy continuing to show strong signs of growth in contrast to the UK."
"The BoE will be hoping that this rate reduction will drive consumer spending, as recent sales data has been disappointing. According to spending figures, consumer card spending fell at its fastest pace since 2021 in November. While the MPC will have welcomed private sector wage growth continuing to slow, there are concerns that this may be the start of a prolonged deterioration of the labour market."
Bank of England cut the base rate by 0.25 percentage points to 3.75% amid an economic downturn and rising unemployment. Recent ONS data showed UK GDP contracted 0.1% in October as Budget-related uncertainty reduced activity. Inflation remains above the 2% target at 3.2%, though at an eight-month low. The central bank appears to have prioritised financial stability within its dual mandate, following the Federal Reserve's recent similar easing. The MPC hopes the cut will boost consumer spending after card spending fell at its fastest pace since 2021. Slowing private sector wage growth coexists with risks of prolonged labour market deterioration.
Read at London Business News | Londonlovesbusiness.com
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