The Bank of England cut interest rates on Thursday for only the second time since 2020 and indicated that future cuts are likely to be gradual, given higher inflation projections and economic growth after the new government's first budget.
The Monetary Policy Committee voted 8-1 to cut interest rates to 4.75% from 5%, a stronger majority than expected in a Reuters poll for a 7-2 vote in favor of a cut. Catherine Mann objected and preferred to keep interest rates.
Sterling rose almost half a cent against the U.S. dollar. immediately after the announcement. British government bond prices fell but quickly recovered from the decline.
"We need to ensure inflation remains close to target, so we cannot cut interest rates too quickly or too much," BoE Governor Andrew Bailey said in a statement.
"But if the economy develops as expected, it is highly likely that interest rates will continue to decline gradually from here," he added, reiterating his statement after the September meeting.
The BoE's cautious tone on future interest rate cuts was similar to previous months, in line with investors' view that it is likely to cut interest rates more slowly than the European Central Bank.
After the BoE rate cut, financial markets only expect around two interest rate cuts from the BoE in 2025.
The BoE said inflation is likely to rise to around 2.5% by the end of this year from 1.7% in September and reach 2.7% by the end of next year, before gradually falling below the 2% target by the end of the three-year projection.
The BoE reiterated its message that monetary policy needs to remain "restrictive for a sufficient period" to ensure a sustainable return of inflation to the 2% target.
