Bank of England set to make second cut after Labor unveils tax hike budget – NBC 5 Dallas-Fort Worth

LONDON – The Bank of England is expected to cut interest rates on Thursday when policymakers make their first monetary policy decision since the Labor Party decision. incredible budget announcement last week.

The Bank of England is forecast to cut rates by 25 basis points for the second time this year, bringing the key rate to 4.75%.

Money markets put a 97% chance of a quarter-point rate cut at the November meeting, even as analysts warn subsequent cuts could be delayed by the government’s tax and spending budget.

“Prospects for stronger growth in 2025 will likely reduce the need for successive cuts in the near term,” Goldman Sachs said in a note last Thursday.

Politicians have signaled a “gradual approach” to cuts after keeping rates at a stable level at their September meeting. However, economists have raised their expectations for faster pace mitigation sharp drop in inflation to 1.7% and a slowdown in wage growth ahead of the budget.

UK Treasury Secretary Rachel Reeves last week announced a 40 billion pound ($51.41 billion) tax rise and changes to UK debt rules to boost government spending and investment.

The Federal Reserve will also release its latest interest rate decision on Thursday following the conclusion of the US presidential election. previously cut by 50 basis points in September.

Pound sterling rises ahead of interest rate cut

Sterling rose on Thursday despite widespread expectations that the Bank of England would cut interest rates.

The British pound was up 0.38% against the US dollar and 0.25% against the euro at 8:43 am London time.

Lower interest rates usually put pressure on currencies. Investors’ attention will now shift to whether the Bank of England will continue to ease monetary policy, given the recent release of its tax hike budget, which some economists see as potentially inflationary.

— Ruxandra Iordache

The US Federal Reserve is poised to cut rates on Thursday

The US Federal Reserve is also set to make its latest interest rate decision on Thursday after the end of US presidential elections.

The Fed is expected to cut rates by 25 basis points, starting the rate-cutting cycle with a huge 50 basis points decline in September.

— Karen Gilchrist

Sharp decline in inflation paves the way for rate cuts

Inflation in the UK fell sharply to 1.7% in September, increasing expectations of a Bank of England rate cut in November.

The below-expected figure marked a significant decline from August’s 2.2% figure, and inflation has fallen below the Bank of England’s 2% target since April 2021.

Analysts suggested the decline could be short-lived as a rise in the regulator’s energy price cap was likely to push prices up slightly last month.

— Karen Gilchrist

Brits are bracing for mortgage growth despite rate cuts

The British faced the prospect higher mortgage rates longer after the government tax and expenditure budget defied expectations of a series of short-term interest rate cuts.

Mortgage rates took a hit last week as a number of lenders raised borrowing costs amid concerns that Reeves’ fiscal plans could speed up economic growth and inflation, thereby delaying the Bank of England’s policy easing.

“This is a confusing time for mortgage borrowers, with the base rate expected to fall… but fixed rates looking set to rise,” David Hollingworth, associate director at brokerage L&C Mortgages, said in a statement on Friday.

Virgin Money became the first major lender to raise mortgage rates since the Budget, raising them by 0.15%. However, some banks disagreed: Santander cut rates by 0.36%.

According to property portal Rightmove, the average five-year fixed mortgage rate is now 4.64%, up from 5.36% last year, and the average two-year fixed rate is 4.91%, down from 5.81% over the same period. in 2023. last week.

“This is not a radical rate hike that has hurt mortgage rates over the last couple of years. But if funding costs don’t come down, the five-year fixed rates below 4% we’ve become accustomed to in recent months could be in jeopardy,” Hollingworth continued, noting that more lenders may reconsider their rates in the future.

— Karen Gilchrist