The Bank of England is poised to reduce interest rates for the second time in three months as inflation has dropped to its lowest level in over three years. Economists caution that concerns about future price trends following recent tax increases and potential economic impacts from the U.S. President-elect may limit future rate cuts.
Currently, the Bank of England is expected to lower its main interest rate by a quarter of a percentage point to 4.75%. This move follows a previous rate cut in August, the first since the early days of the pandemic in 2020.
Central banks globally had raised interest rates significantly during the pandemic due to rising prices caused by supply chain disruptions and geopolitical events like the Russia-Ukraine conflict. With recent decreases in inflation rates, these banks have started to lower interest rates.
Analysts believe that the Bank of England is confident that inflationary pressures in the U.K. economy have eased sufficiently to warrant further easing of financial burdens on businesses and mortgage holders. Inflation in September was at 1.7%, below the central bank's 2% target.
The rate decision comes after a recent announcement of increased government spending, funded through higher business taxes and borrowing. Economists fear that this spending, combined with potential price hikes by businesses to offset tax increases, could lead to higher inflation next year.
Additionally, the recent U.S. presidential election outcome, with Trump declared the winner, has raised concerns. Trump's proposed tax cuts and tariffs on imports could have inflationary effects both in the U.S. and globally, prompting Bank of England policymakers to potentially maintain higher interest rates than initially planned.
The U.S. Federal Reserve is also expected to address the implications of a second Trump presidency in its upcoming policy meeting, where a similar interest rate cut is anticipated.
