Pound plunges as Bank of England cuts rates – and hints at more to come
Pound plunges as Bank of England cuts rates – and hints at more to come
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The value of the pound has sunk sharply as the Bank of England signalled there would be more interest rate cuts later this year. Sterling plunged 1.1pc during trading to $1.237 after policymakers cut interest rates to 4.5pc in a surprise vote that saw two members vote for even steeper reductions. It later recovered to about 0.6pc down at the close of trading, at $1.244. The Monetary Policy Committee (MPC) voted 7-2 to cut rates as it slashed its growth forecast for 2025 in half.
Officials warned that there were increasing signs that Rachel Reeves’s record tax raid was dragging on the economy, which is predicted to barely avoid falling into recession. Two MPC members, Catherine Mann and Swati Dhingra, called for a bigger rate cut of half a percentage point to 4.25pc, as they warned there were signs that the economy was slowing faster than expected. Traders have ramped up bets on further interest rate cuts, favouring another three reductions by the end of the year.
However, the Governor of the Bank of England, Andrew Bailey, insisted there would be a “gradual and careful approach to reducing rates further”. Bank staff now believe the economy will expand by just 0.75pc this year, down from a projection of 1.5pc just three months ago. Its latest economic forecasts warned of a stagnating economy, higher inflation and rising unemployment against the backdrop of a £40bn tax raid that will hit low-paid workers hardest.
Read the latest updates below. That’s all for today. Thanks for joining us on this live blog. All our latest news and commentary on the economy can be found here. Wall Street is subdued today as traders waited for a fresh signal on the economy from tomorrow’s jobs figures. Investors were also looking towards Amazon’s results, out tonight. Tech firms are under pressure to deliver on lofty expectations for cloud computing after unimpressive reports from Microsoft and Google owner Alphabet earlier this week.
In trading, the S&P 500 rose 0.2pc, the Nasdaq added 0.3pc, but the Dow Jones Industrial Average of 30 leading US companies fell 0.4pc. Meanwhile, European stocks hit a record high, helped by optimism about company profits. The pan-European Stoxx 600 jumped 1.2pc, while the top French and German indexes both rose 1.5pc. The Conservatives have warned that Labour’s tax rises are pushing the UK towards both a stagnating economy and higher inflation.
Mel Stride, the shadow chancellor, said: “We are heading for ‘Starmflation’ thanks to Labour’s mismanagement. The Bank of England have halved their growth forecast for this year. They’ve said the Budget is fuelling inflation and Labour’s tax rises mean fewer jobs, lower wages and higher prices. “The Chancellor needs to wake up to the reality - her choices are making us poorer. Labour are completely out of their depth and the country cannot afford it.”.
Donald Trump’s nominee for US Trade Representative, Jamieson Greer, has said he would work to ensure better access for US companies to markets in many of the United States’s largest trading partners, including Vietnam. “To me, this is a huge problem,” Mr Greer said, citing the negative impact of longstanding trade imbalances on US workers, exporters and manufacturers. If confirmed, he said he would in “short order” assess the unfair trading practices of countries such as Vietnam, and explain to these countries “that if they want to enjoy continued market access to the United States, we need to have better reciprocity”.
The FTSE 100 reached a record high today after the Bank of England announced that it is cutting interest rates. London’s blue-chip index finished the day at 8,727, or a 1.2pc rise. It comes after the Bank cut rates to 4.5pc, but presented a gloomy economic outlook for the UK over the next year. Policymakers said economic growth is going to be half as much as they previously thought, at just 0.75pc, while interest rates are going to rise faster than expected.
The pound plunged on the announcement, falling more than 1.1pc against the dollar before recovering to about 0.6pc down at the close of trading, at $1.244. It was 0.3pc down against the euro at €1.199. Nonetheless, governor Andrew Bailey said the Bank stood ready to cut rates again this year, boosting the FTSE. Danni Hewson, an analyst at finance firm AJ Bell, said the announcement gave the market “a shot of adrenaline”.
She said: “The latest interest rate cut from the Bank of England might come with warnings about weak growth and the unpleasant return of higher prices, but today investors were happy to look past that and focus instead on the prospect of more cuts this year than had previously been priced in.”. In Europe, France’s Cac 40 rose 1.5pc, and in Frankfurt the Dax was also up 1.5pc. The head of cosmetics giant L’Oreal has warned that the EU faces “crunch time” as he warned that the continent could fall further behind the US.
