BOE Trims Rates to 4.75%, Balances Easing with Inflation and Budget Uncertainty

Daily GBP/USD

In currency markets, the British pound also responded positively to the BOE’s decision, rising 0.3% to reach $1.2929. The pound’s appreciation reflects market sentiment that while rates are gradually decreasing, the central bank remains cautious about easing too quickly.

Finance Minister’s Response and Economic Outlook

U.K. Finance Minister Rachel Reeves expressed approval of the BOE’s rate cut, acknowledging it as beneficial for households struggling with high costs. However, she emphasized that economic pressures on families remain significant. Reeves referred to prior government fiscal missteps, including former Prime Minister Liz Truss’s “mini-budget” in 2022, which led to significant market turmoil and required BOE intervention. Reeves positioned her recent budget as part of a strategy to deliver economic stability and long-term growth, though some analysts warn it may fuel inflationary pressures in the short term.

Market Forecast: Cautious Bullish Outlook

While the BOE’s rate cut reflects confidence in moderating inflation, the potential for higher inflation in 2025 and increased fiscal spending suggests a cautious approach ahead. Given the government’s expansive budget, the BOE may prioritize gradual adjustments, reducing the likelihood of rapid rate cuts. This measured stance, combined with supportive fiscal policy, indicates a cautiously bullish outlook for U.K. equities and gilts in the short term, although inflationary pressures will be closely monitored for shifts in the BOE’s approach.