Closing post
Time to wrap up….
The Bank of England has cut interest rates to 4.5%, as it halved its UK growth forecasts for the year and warned households would face renewed pressure from rising prices.
With the government under fire over the sluggish economy, the Bank’s monetary policy committee (MPC) voted by a majority of seven to two to reduce its key base rate, down from 4.75%, to provide some financial relief to borrowers.
It also sounded the alarm for the year ahead, downgrading its 2025 growth forecasts made in November from 1.5% to 0.75% and warning that inflation would reach a fresh peak of 3.7% by the autumn – almost twice the 2% target set by the government.
However, Andrew Bailey signalled Threadneedle Street stood ready to cut borrowing costs further this year despite the short-term rise in inflation, amid concerns over the weak economy.
He said:
“There will be a bump in the road [from inflation] but we don’t think that bump is going to have a lasting effect.”
He added that the Bank would take a “gradual and careful approach to reducing rates further.”
Sterling fell against the US dollar as investors bet on a deeper round of interest rate cuts, having been taken by surprise that two MPC members had pushed for a larger half-point reduction, including Catherine Mann, previously a leading hawk….
More here:
Bailey told reporters that the monetary policy committee expects to be able to cut rates further as “the disinflation process” continues.
In other reaction…
The pound has dropped by three-quarters of a cent against the US dollar tonight, to $1.243.
This helped drive the FTSE 100 share index up to a new alltime high.
The money markets now predict the Bank will cut interest rates twice or three more times this year – with cuts in May and August priced in.
Some economists, though, questioned whether the Bank’s decision was quite as dovish as the City reaction implies.
Others warned that the sharp cuts to UK growth forecasts were bad news for Rachel Reeves ahead of next month’s Spring Statement.
The chancellor said she “wasn’t satisfied” with the UK growth rate…
…while the Liberal Democrats called the weak growth forecast ‘putrid’…
…and prime minister Sir Keir Starmer said the rate cut would put more money in people’s pockets.
Here’s our analysis of the situation:
Goodnight. GW
Updated
Analysis: Unambiguously bleak Bank of England forecasts pave way for spending cuts
With the public finances tight and Rachel Reeves having pledged to balance the books, interest rate cuts are one of the few levers that could boost the UK’s economic growth in the short term, and the chancellor will be glad of the Bank of England’s quarter-point reduction on Thursday – and the clear signal that it is now in cutting mode.
Seven of the monetary policy committee’s (MPC) nine members backed the quarter-point drop, taking the Bank’s policy rate to 4.5%, while two wanted to be more “activist”, proposing a half-point cut. The Bank of England’s governor, Andrew Bailey, said the MPC would be “taking a gradual and careful approach to reducing rates further”.
Lower borrowing costs should feed through fairly rapidly to firms and households, compared with the impact from the runways, power stations and bridges that form the heart of the chancellor’s “plan for growth”. And against the right economic backdrop, rate cuts can act as a short-term mood-booster.
Yet the picture of the UK painted by the Bank’s quarterly inflation report, published alongside the 7-2 rate decision, is unambiguously bleak.
The MPC has halved its forecast for GDP growth in 2025, from the 1.5% it was predicting in November, to a sickly 0.75%. Economic output is expected to have contracted by 0.1% in the final three months of 2024 and expanded by just 0.1% in the current three-month period – narrowly skirting a recession, defined as two successive quarters of decline. Productivity, the Bank suggests – which Reeves badly wants to improve – has declined….
More here:
Updated
FTSE 100 finishes at new closing high after rate cut
Shares in London have closed at a new record peak, helped by the tumble in the value of the pound today.
The FTSE 100 index, which hit fresh intraday highs this morning, has closed up 104 points or 1.2% at 8727 points.
Daniela Sabin Hathorn, senior market analyst at capital.com, says:
The Bank of England has cut rates by 25 basis points as widely expected.
The vote split showed all nine MPC members were in favour of cutting rates in February, suggesting the central bank is more confident in its attempt at normalising their policy rates given the softening in inflationary pressures. Two MPC members voted to go further and cut rates by 50 bps at this meeting. Dhingra should not be a surprise as she has been a long-term dove within the central bank, but Catherine Mann’s vote seems slightly unexpected. This has given the meeting more of a dovish tone, leading markets to bring forward the expectations on when the next rate cut will be, from June to May.
This repricing in expectations has caused the UK gilt yields to drop alongside the pound. GBP/USD has retraced some gains achieved earlier this week as the more dovish BoE further widens the yield differential between the US and the UK. Meanwhile, UK stocks are taking advantage of the increased odds of more rate cuts with the FTSE 100 delivering another strong performance and breaking to a new all-time high.
Analysts at ABN AMRO argue that the Bank of England’s decision today is “less dovish than meets the eye”.
They have raised their forecast for UK interest rates in 2026 to 3.5%, which is a quarter-point higher than before.
For one thing, they think the Bank’s ambition to keep cutting rates could be thwarted if inflation runs too high, saying:
With the MPC seeming to give high wage growth the benefit of the doubt, and given the tepid nature of the recovery, we see the MPC continuing to cut rates in the near-term, but at a gradual, 25bp-per-quarter pace (at the May, August and November meetings).
Previously, we expected a pause at the May meeting. However, we think inflation will take longer than the MPC thinks to get back to the 2% target, and as such we see Bank Rate settling at a higher 3.5% level in 2026, compared with our previous expectation for a fall to 3.25%.
This would leave Bank Rate just within the upper end of neutral rate estimates (these were updated in today’s MPR to between c2.25-3.9%). While we have removed our expectation for a near-term pause in rate cuts, we see a significant risk that the MPC has to pause or even abort rate cuts later this year, particularly if wage growth does not fall as sharply as survey indicators currently suggest.
ABN AMRO also suggest the markets have overreacted to Catherine Mann’s decision to vote for a half-point cut today – something they call a “puzzling dissent”.
While not specifically attributed by name, the minutes said of one of the 50bp dissenters: “a more activist approach at this meeting would give a clearer signal of financial conditions appropriate for the United Kingdom, even as monetary policy would need to remain restrictive for some time to anchor inflation expectations, and Bank Rate would likely stay high given structural persistence and macroeconomic volatility.”
Given the hawkish tone of the latter part of this statement, this almost certainly refers to Catherine Mann. While a puzzling move, Mann appeared to want to counter the unwarranted tightening of financial conditions driven by the rise in US bond yields, which has also spilled over to UK gilt (and other European bond) yields.
It is likely therefore that Mann remains on the hawkish end of the spectrum fundamentally, and financial markets – which responded initially by raising expectations for BoE cuts – arguably overreacted to the news.
Today’s interest rate cut should be good news for UK housebuilders, who could see higher demand once it’s cheaper to borrow to buy a home.
Georgina Hamilton, fund manager for the Polar Capital UK Value Opportunities Fund, says:
“The voting split was more dovish than forecast with two members voting for a 50 basis point cut.
This is likely to lower the forward interest rate curve towards the MPC’s forecast of 4 rate cuts this year which in turn should lower the mortgage rate. The 5-year swap rate, the key metric from which mortgage rates are calculated moved down on the news and is actually lower than at the October Budget. This should be good for housebuilding shares, REITs and domestic consumer shares more broadly”.
Rate cuts expected in May and August
The money markets are sending a clear signal about how investors see UK interest rates changing over the next few months.
The next cut to UK interest rates, to 4.25%, is fully priced in for May – which is the next time the Bank of England will update its economic forecasts and publish a new Monetary Policy Report.
A further quarter-point cut is fully priced in by August (when we’ll get another MPR).
Will there be a fourth cut in 2025? The markets suggest there’s a chance – as 63 basis points (0.63 percentage points) of cuts are priced in by the end of December….
FOC CEO quits unexpectedly
The chief executive of the UK’s Financial Ombudsman Service has unexpectedly resigned, months after the chancellor called for a formal review of the body as it faced growing complaints over its role in the motor finance commission scandal.
Abby Thomas had only been in the role since October 2022, but was facing mounting criticism from lenders, which claim the FOS has been making decisions out of line with FCA rules, particularly in regard to complaints over undisclosed commissions on car loans.
That, lenders say, has been muddying regulatory waters and making it harder to lure investors to the UK.
Chancellor Rachel Reeves used her Mansion House speech in November to call for reforms to the FOS:
“The Financial Ombudsman Service plays a vital role for consumers to get redress when things have gone wrong, and that will not change. But reform is needed to create a surer climate for investment.”
City bosses such as Phoenix chief Andy Briggs have called for more stringent oversight of FOS operations. Briggs told the Lords financial services regulation committee last month:
“I would move the FOS underneath the FCA, so the FCA set the principles and standards of consumer protection [and] consumer regulation, but then the FOS have to work within those FCA rules, rather than a different set of rules.
“I think that would be a really beneficial, symbolic action to overseas investors, to say, ‘right this government is going to face into this fear of retrospective regulation’”
The FOS would not comment on whether the motor finance matter influenced Thomas’ resignation, pointing only to a statement which announced her departure and thanked her for her work.
MPs on the Treasury committee are due to grill FOS bosses about her departure next Tuesday, during a session focused on motor finance that Thomas was expected to attend.
*Note: this post was amended to correct the surname of the FOS CEO Abby Thomas
Updated
Bank of England policymaker Catherine Mann’s surprise decision to vote for a 50 basis point rate cut is giving the market “food for thought”, says Kathleen Brooks, research director at XTB.
Mann is an arch hawk, who has mentioned in previous speeches her preference for a ‘shock and awe’ approach to rate cuts, i.e., bigger cuts when the going gets tough for the economy.
The fact that she thinks the economic picture is so dire that we need a 50bp rate cut, is a sign that the BOE could be behind the curve when it comes to setting interest rates at an appropriate level for the UK economy.
Brooks adds that the UK’s fiscal watchdog, the Office for Budget Responsibility, is “all but certain” to cut its growth forecasts, saying:
This is a blow to the government, and suggests that the government will need to decide: 1, does it balance the books (raise taxes) or 2, take a pro-growth stance, like it professes to do? Depending on what the Chancellor does next month, this could have a big impact on the BOE’s future policy path.
Pound on track for worst day in a month
The pound is on track for its biggest one-day fall in a year, dragged down by today’s UK interest rate decision.
Sterling is down almost one cent against the US dollar this afternoon at $1.241, which would be its biggest one-day drop since 10 January.
[It did suffer a sharper plunge on Monday, on trade war fears, but then reversed after Donald Trump delayed tariffs on Mexico and Canada].
The pound has weakened to reflect “the dovish shift in thinking amongst MPC members”, says Lee Hardman, currency expert at MUFG Bank.
Hardman told clients:
The BoE cut rates again by 25bps to 4.50%. However, two dissenters voted in favour of a larger 50bps rate cut.
MPC members have become more pessimistic over the UK economic outlook creating more room to lower rates to less restrictive levels.
We still expect another gradual 25bps cut at the May MPC meeting but there is a higher risk of faster easing being delivered.
ING predict three more interest rate cuts this year
James Smith, developed markets economist at ING Bank, says the Bank of England’s decision, which saw two members vote for a more aggressive rate cut, has caught markets slightly off-guard.
But the overall message is a gradual one and they’re sticking to their call of four rate cuts in total this year.
Smith says:
More dovish tint to the vote split is offset by a fairly hawkish set of forecasts.
Overall message was one of gradualism on future rate cuts.
Interest rate expectations across the curve are around 8bp lower, which takes the market closer to pricing four full rate cuts in 2025 – one per quarter.
We still expect the next cut in May, with further moves in August and November.
Investec confirm that the voting split at the Bank of England this month was a surprise, telling clients:
Surprisingly the vote was 7-2, with the dissenters preferring a 50bp cut. Dove Swati Dhingra and former hawk Catherine Mann both voted for a 50bp reduction. We had expected an 8-1 vote, with Mann voting for unchanged rates.
That two members voted for a more aggressive 50bp cut is clearly a more dovish outturn than expected, However the seven majority members also entertained some differences between them.
One group suggested that the disinflation process remained on track and was consistent with a continuation of the MPC’s gradual approach, leaning against inflation, but also being careful of increased uncertainty and two-sided risks to inflation.
The other group was less sanguine on inflation. It argued that upside news on inflation and pay in conjunction with disappointing news on activity largely reflected weak productivity trends. This implied a lower economic supply capability and that as a result, less spare capacity would be opened up if activity stayed weak
Simon French, chief economist at Panmure Gordon, has spotted that the Bank of England has raised its forecast for gas prices this year by 15 percentage points.
That – a key factor behind the Bank’s forecast for higher inflation this year – shows “the materiality of energy security”, he argues:
The 15% increase in the gas price assumption for 2025 from the BoE - that arithmetically pushes forecast CPI inflation to 3.7% in Q3 - shows the materiality of energy security to the UK cost of capital/ disposable incomes. Remains a Securonomics anomaly that external LNG supply… pic.twitter.com/dkvgnlxhKd
— Simon French (@Frencheconomics) February 6, 2025
Modupe Adegbembo, economist at Jefferies, points out that the Bank of England is in a “difficult” spot, saying:
“The Bank of England cut rates as widely expected
“The dovish vote split drove the initial reaction in markets with two members voting for a 50bp cut, but it seems that some on the MPC are not convinced and are still keen to proceed ‘gradually and carefully’.
“At the same time, the BoE’s inflation forecast stands out, with the MPC now expecting inflation to rise to 3.7% next year, close to double the Bank’s target.
“This will add to fears of stagflation that have driven UK markets in recent weeks.
“This leaves the BoE in a difficult spot, but it’s clear the cutting bias remains, and we continue to expect the BoE to cut rates three more times this year.”
Starmer welcomes rate cut
Sir Keir Starmer has joined chancellor Rachel Reeves in welcoming today’s Bank of England interest rate cut.
The prime minister says people would have “more money in their pockets” following today’s decision, telling broadcasters:
“I think it’s important to look at what’s happened. The interest rate has come down, that’s the third drop in interest rates since July.
“That’s good news because for many people watching this it means they will have more money in their pockets.
“Wages are going up higher than inflation, so again people feel better off. The minimum wage has gone up.”
Starmer added:
“We are absolutely determined we are going to grow the economy, and I don’t mean a line on a graph, I mean people feeling better off.”
Factcheck: People on tracker mortgages should have more money, as lenders pass today’s rate cut along. But (as was flagged in the BoE press conference), someone coming off, say, a five-year fixed mortgage this year will still face higher borrowing costs – as rates were at record lows until the end of 2021.
Also, savers will have less cash in their pockets, prime minister, if other bank’s follow Santander’s lead and lower savings rates (see earlier post).
Lib Dems: “putrid growth figures” are wake-up call for Reeves
The Lib Dems have said the latest “putrid growth figures” should be a wake-up call for Rachel Reeves.
Following the news that the Bank of England has halved its forecast this year, to just 0.75%, Liberal Democrat Treasury spokeswoman Daisy Cooper MP said:
“The new growth forecast needs to be a wake-up call for the Chancellor.
“Our economy will never see the back of the years of Conservative economic vandalism if she continues to push ahead with her misguided national insurance hike.
“Reeves must also change course on her baffling refusal to negotiate a bespoke UK-EU customs union to turbocharge growth.
“People are still having to choose between heating and eating, and being forced to use public services that are completely broken. Without an economy that is thriving, none of this will change.
“Rachel Reeves needs to see sense, scrap her national insurance rise, which is hammering small businesses, and jettison her short-sighted red lines on a customs union. Only then will we see an end to these putrid growth figures.”
The City does not, however, expect an interest cut as soon as next month.
The money markets indicate there’s a 78% chance that the Bank leaves rates on hold at its next meeting on 20th March, and just a 22% possibility of another cut.
Another quarter-point rate cut is fully priced in for May, though.
There is a “rising chance” of UK interest rates falling quicker to 3.50% and further, predicts City consultancy Capital Economics.
They say:
While cutting interest rates from 4.75% to 4.50% today, which was the third 25 basis point (bps) cut in seven months, the Bank of England showed some signs that it may cut rates faster and further than our forecast of a decline to 3.50% by early 2026.
That forecast is already below investors’ expectations of a fall to 3.75%. And with the Fed’s cutting cycle over, a big gap in UK/US interest rates is on the way.
The Monetary Policy Committee voted by a majority of 7-2 to reduce #BankRate to 4.5%.
— Bank of England (@bankofengland) February 6, 2025
Find out more in our #MonetaryPolicyReport https://t.co/alETrQ281L pic.twitter.com/Vuo5G6m1H8
Rachel Reeves will be cheered by the sight of two Bank of England policymakers voting (in vain) for a half-point cut in interest rates today, says the Resolution Foundation.
That unexpected the move (and the fact that one was the previously hawkish Catherine Mann) suggest rates may come down more quickly than had previously been expected, they suggest.
And that would raise the Chancellor’s hopes of lower debt servicing costs that could help the UK’s fiscal position.
James Smith, research director at the Resolution Foundation, says:
“Last week the Chancellor set out her plan to boost growth over the next decade, but today the Bank has said it expects to see next-to no growth over the coming months.
“The upcoming energy prices-led spike in inflation could prove painful for low-income families, who spend around a tenth of their budgets on these bills.
“The Bank’s downbeat assessment may however contain a silver lining for the Government and mortgage holders. The MPC may quicken the pace of interest rates cuts this year, reducing debt servicing costs to give the Chancellor some much-needed headroom, and reducing rates for those looking to remortgage this year.”
Santander passes on rate cut to mortgages, and savings
With the Bank of England’s press conference over, the financial world is reacting to today’s cut in UK interest rates to 4.5%.
Santander, one of the UK’s largest lenders, says it will cut its rate for tracker mortages, its standard variable rates, and the interest rate on savings products too, from the start of March.
Here’s the details:
Mortgages
All existing Santander tracker mortgage products linked to the base rate will decrease by 0.25% from 3 March 2025. This includes the Santander Follow-on Rate (FoR) which will decrease to 7.75% from 8.00%.
The Santander Standard Variable Rate (SVR) will also decrease by 0.25% to 6.75% from 7.00% on 3 March 2025.
Savings:
Santander savings products that are linked to the Bank of England base rate will decrease by 0.25%, effective from 3 March 2025. The products linked to the base rate are the Rate for Life and Good for Life savings accounts.
Updated
Q: Was it helpful for Rachel Reeves to recently quote a Goldman Sachs forecast for six UK interest rate cuts this year?
BoE governor Bailey says it didn’t have any real relevance to the Bank’s decision today – the chancellor can quote any forecasts she likes.
That outside forecast by Goldman doesn’t have any impact on the Bank’s own forecasts, he insists.
Q: What impact will the US Federal Reserve’s decision to leave the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) have?
Bank of England governor Andrew Bailey says membership of the group was voluntary, and he “respects” the Fed’s decision.
The BoE has decided to continue to be a member of the network, Bailey says – but not because of a “judgemental” view about climate chainge.
The network is useful for the macroeconomic modelling it does on climate change, Bailey explains.
[something the Fed will have to cope without….]
Q: On productivity – the public sector is growing fast, but public sector productivity is not. Why?
Andrew Bailey says various conventions measure public sector output – and they have not shown a commensurate increase alongside public sector employment.
He seems to be suggesting that there’s an issue about how well those conventions measure public sector output (for schools and hospitals, for example).
Q: Your forecasts are terrible – with higher inflation and lower growth across the forecast horizon? Do you believe your own forecasts? Why does the UK have such an inflation problem?
Andrew Bailey says some of the elements pushing up UK inflation in the coming months are UK-specific – such as higher bus fares and water charges.
But other elements, such as rising European gas prices, are more international – but the impact on individual countries depends on how they manage their domestic energy prices.
Back onto tariffs, Bailey says we need to allow Donald Trump’s administration “time” to work out its policies.
The Bank will judge them once they are implemented, he pledges.
Q: You have halved your 2025 growth forecast [to just 0.75%]. How much is that due to the budget?
No, it’s not a judgement on the budget, Bailey insists.
Growth has been flat since the spring of last year, he points out, leaving the Bank to ‘puzzle’ about what’s going on.
He sounds surprised that growth has been flat even though the UK population, and thus the labour force, has been rising – it must be that productivity is negative.
Q: Are you happy to cut interest rates even as inflation rises?
Governor Andrew Bailey reiterates that the Bank expects the disinflation process to continue.
Q: Your new analysis on the increase in employer national insurance rates (in last autumn’s budget) shows you expect more job losses than anticipated before, and higher prices. So, does the NICS increase make you more cautious about rate cuts?
Andrew Bailey says the Bank hasn’t changed its view since November, although it has made a small change to its estimate about the impact of NICs changes.
Firms are still waiting to see the impact, he suggests.
Q: Despite today’s rate cut, your monetary policy report shows that many mortgage holders face remortgaging at a higher rate – so will households be better off, or not, over the forecast period?
Andrew Bailey says today’s rate cut should already have been priced into the prices for mortgage rates.
And he repeats his warning that Britain faces a “bump in the road on inflation”, due to a pick-up in energy prices and utility prices.
The Bank of England governor says he is concerned about the impact of this bump on household finances, even though real wages are rising again.
Bailey acknowledges that households are hurt by higher prices, even if the rate of increase has slowed, saying:
We do understand the distinction between inflation and levels.
Updated
Q: Are the markets are “a little bit overexcited” over Catherine Mann’s conversion from a hawk to a dove today? After all, your forward projects look ‘less dovish’ – have the markets got carried away by expecting more aggressive cuts?
[Reminder, Mann has surprised the City by voting for a large, half-point cut to rates today, having previously opposed cuts].
Governor Andrew Bailey says there’s no ‘group think’ on the MPC, and that it was a 7-2 vote – with seven members taking a similar view on the situation, and plumping for a quarter-point cut.
Bailey says he wants to be “very, very clear” that markets should not overinterpret moves in voting patterns.
The “economic fundamentals” will determine the path of interest rates, he insists.
Updated
Bailey: Fragmentation of world economy would be bad for growth
Q: what impact might new trade tariffs have on the UK economy? our economics editor Heather Stewart asks.
BoE governor Andrew Bailey says that if tariffs caused a fragmentation of the world economy, that would be negative for growth in the world economy, due to the impact on trade.
He hopes that wouldn’t occur.
The impact on inflation is much harder to calculate though.
It depends what ‘redirection of trade’ take place due to tariffs, and also how exchange rates change.
“Events of the last week,” have shown how hard it is to factor in changes to tariffs to the Bank’s forecasts, Bailey adds.
[That’s a fair point! Last weekend, Donald Trump announced 25% tariffs on Mexico and Canada, only to delay them by a month on Monday].
Bank of England's gold delivery slots are booked up
Q: How much gold has left the Bank of England’s vaults in anticipation of new tariffs?
Deputy governor Sir Dave Ramsden says the Bank has the second-largest stock of gold in the world, with over 400,000 gold bars in its vault.
That total has fallen around 2% since the end of 2024, he reveals, saying there has been strong demand for gold delivery slots at the Bank because the US gold market has traded at a premium to the London market.
Ramsden says the Bank can meet that demand, but all its existing slots are booked up, so any new customer trying to acquire gold from the Bank might have to wait a bit.
Ramsden says he faced delays getting through the Bank’s security this morning, as there was a lorry in the bullion yard loading up with gold.
Updated
Q: Was the recent rise in UK borrowing costs due to Britain losing the confidence of the markets, or was it more due to international factors?
[Reminder, the UK’s long-term borrowing costs hit their highest since 1998 last month, but have now fallen back to levels seen in December].
Governor Andrew Bailey says bond market moves have been part of a global trend.
He points out that UK bond yields (interest rates) moved essentially with the US rate curve, adding that the recent move down has been led by the US.
[Bailey is quite right – UK bond yields fell yesterday after weaker-than-expected growth in the US services sector pushed down US Treasury yields, as we covered in yesterday’s liveblog].
Bailey: Won't use the term 'stagflation'
Q: You are forecasting flat growth from last March until the middle of this year, and inflation rising all the way through to the autumn – is this light, or even medium, stagflation?
Andrew Bailey says he doesn’t use the word ‘stagflation’, as it doesn’t have a clear definition.
But he confirms that the economy has been ‘flat’ recently, after faster-than-expected growth at the start of 2024.
And on the inflation pictures, Bailey insists that today’s rate cut is anchored on the belief that the disinflation process is underway (implying that stagflation fears may be misplaced?)
Deputy governor Dave Ramsden points out that the eurozone didn’t grow in Q4 of 2024 (as the Bank fears happened in the UK too).
Bailey backs Reeves's growth agenda
Q: What impact will Rachel Reeves’s growth reforms – such as planning reforms, a new Heathrow runway, new reservoirs – have on the economy?
Bank of England governor Andrew Bailey says he is a very very strong supporter of the government’s growth agenda, and the growth agenda of the previous government too.
Potential growth in the UK has been low since the financial crisis, he points out, so it is “critical” to address that.
Bailey declares:
“I very strongly agree with the chancellor on this point.”
But, he adds, structural policies take time to come through – so you wouldn’t expect a lot of the impact of Reeves’s plans to appear quickly, and feature on the Bank’s forecasts over the next two to three years.
Onto questions!
Q: The markets assume ‘gradualism’ means one rate cut per quarter, but your forecasts are based on slower rate cuts. Should we rethink what a ‘gradual’ approach mean?
And when you say a “careful approach” is needed to rate cuts, what do you mean?
Bailey says “gradual” means the Bank still wants to see the process of disinflation taking place.
The addition of ‘careful’ to the Bank’s guidance is a nod to the domestic, and international, uncertainty out there, he says, revealing there was quite a debate about adding ‘careful’ to the previous pledge of a ‘gradual’ approach.
Domestic uncertainty centres on the UK’s weak economic outlook, and the question about how much is due to weak demand versus supply, Bailey continues – pointing out that productivity has weakened.
And internationally, the risks are “two-sided” – it could create conditions where disinflation happens faster, or slower.
Updated
Andrew Bailey wraps up his prepared statement by insisting that Bank rate is not on any pre-set path, and that the Bank will proceed ‘carefully’, judging the evidence ‘afresh’ at each meeting.
Bailey: Unclear what form global trade policies will take.
It remains unclear what form global trade policies may take, BoE governor Andrew Bailey tells reporters in London – a nod to the trade war that has broken out between the US and China this week.
Today’s forecasts are not based on any assumption about trade tariffs, he adds.
Activity in the economy was weaker than expected last year, BoE governor Andrew Bailey says.
Growth is likely to be “notably weaker” in the near term too, he warns, before picking up in the middle of this year.
Governor Bailey then warns that the UK labour market is cooling, as economic activity weakens.
Bank agents around the country are reporting that companies are unwilling, or unable, to pass on rising costs to consumers though higher prices, he says.
Bailey: expect to keep cutting rates further thanks to disinflation
Bank of England governor Andrew Bailey begins today’s press conference by confirming that Bank rate has been cut to 4.5%.
He says this will be “welcome news to many”, adding that the monetary policy committee expects to be able to cut rates further as “the disinflation process” continues.
But, he adds:
We will have to judge, meeting by meeting, how far and how fast.
The road ahead will have “bumps on it”, Bailey adds, pointing out that we live in an uncertain world.
He flags the Bank’s forecast that inflation will rise to 3.7% this year (see earlier post), before dipping back.
Depite that forecast, the Bank sees signs that underlying inflation is easing (allowing today’s rate cut).
Updated
Bank of England press conference begins
The Bank of England is giving a press conference now to explain why it cut interest rates.
You can watch it here:
City expects more interest rate cuts this year
The financial markets have raised their expectations for interest rate cuts this year.
The money markets are now pricing in another 67 basis points (0.67 percentage points) of cuts this year, on top of the 25bps cut just announced.
That means two more cuts (likely in May and August) are fully priced in, with a decent chance of another before the end of the year.
Suren Thiru, ICAEW Economics Director, says:
“This decision confirms that UK interest rates are firmly locked onto a downward trajectory, providing a much-needed fillip to consumers battling with high mortgage costs and businesses still reeling from a painful budget.
“While this cut may lift morale, it is unlikely to sufficiently alleviate the challenging financial position faced by many people and businesses, as only slight inroads have been made into reversing the previous period of significant rate hikes.
“The unanimous decision to loosen policy suggests that concerns among rate setters over the UK’s struggling economy are currently outweighing worries over rising inflation, opening the door for another rate cut sooner rather than later.
“With the Bank of England’s latest forecasts suggesting that stagflation is a growing risk, the path to future interest rate cuts is likely to become more treacherous, particularly given mounting global headwinds.”
Updated
Reeves: I'm still not satisfied with the growth rate
Rachel Reeves, the Chancellor of the Exchequer, has welcomed the Bank’s decision to cut interest rates today – and also signalled her commitment to growing the economy.
She says:
“This interest rate cut is welcome news, helping ease the cost of living pressures felt by families across the country and making it easier for businesses to borrow to grow.
“However, I am still not satisfied with the growth rate. Our promise in our Plan for Change is to go further and faster to kickstart economic growth to put more money in working people’s pockets. That’s why we are taking on the blockers to get Britain building again, ripping up unnecessary regulatory barriers and investing in our country to rebuild roads, rail and vital infrastructure.”
Bank: inflation is heading higher
More bad news: The Bank of England expects inflation to rise higher this year.
It predicts inflation will “rise temporarily this year, to 3.7%”, partly due to higher energy prices, up from 2.5% in December.
Inflation is expected to fall back again to the 2% target after that.
The Bank says:
Domestic inflationary pressures are moderating, but they remain somewhat elevated, and some indicators have eased more slowly than expected.
Higher global energy costs and regulated price changes are expected to push up headline CPI inflation to 3.7% in 2025 Q3, even as underlying domestic inflationary pressures are expected to wane further. While CPI inflation is expected to fall back to around the 2% target thereafter, the Committee will pay close attention to any consequent signs of more lasting inflationary pressures.
Bank slashes growth forecasts
The Bank of England slashed its forecasts for UK growth this year, in a blow to the government.
It now predicts UK GDP will only grow by 0.75% this year, just half the 1.5% it forecast back in November.
Gloomily, the Bank predicts that the economy shrank, by 0.1%, in October-December last year, after stagnating in July-September.
After cutting interest rates to 4.5% today, the Bank says:
GDP is projected to have fallen by 0.1% in Q4 and to rise by 0.1% in 2025 Q1, also weaker than the 0.3% and 0.4% rates expected in November.
Updated
Pound falls further
The pound has fallen sharply against the US dollar after the Bank’s interest rate decision, adding to its earlier losses.
Sterling is now down over 1.2 cents against the US dollar at $1.2371.
Traders are surprised that the formerly hawkish Catherine Mann has taken on a new, dovish plumage – a move that could pave the way to further rate cuts in the months ahead.
Dhingra and Mann (!) voted for larger rate cut
There’s one shock in today’s interest rate decision – and that’s the identity of the two policymakers who wanted a deeper cut to borrowing costs.
One is expected – Swati Dhingra, a dovish policymaker who has long been pushing for lower interest rates.
But the second is a surprise – it’s Catherine Mann, who many economists thought might oppose a rate cut today (as she has in the past).
The pair both voted to reduce Bank Rate by 0.5 percentage points, to 4.25%, but were outvoted by the other seven, who voted to only cut to 4.5%.
Mann recently told MPs that she favoured an “activist monetary policy strategy” of cutting rates aggressively once inflation pressures had ebbed. She must think that moment has now arrived….
Update: The minutes of the Bank’s meeting spell out what happened:
For one member, a more activist approach at this meeting would give a clearer signal of financial conditions appropriate for the United Kingdom, even as monetary policy would need to remain restrictive for some time to anchor inflation expectations, and Bank Rate would likely stay high given structural persistence and macroeconomic volatility.
For the other member, the subdued outlook for demand remained consistent with CPI inflation staying sustainably at the target in the medium term despite the expected near-term uptick in regulated prices, and Bank Rate needed to account for policy transmission and supply capacity over the medium term.
Updated
UK interest rates cut in split vote
Newsflash: The Bank of England has cut UK interest rates to 4.5%, their lowest level since June 2023.
The cut, which was widely expected by economists, will ease some of the financial pressure on borrowers, and could help stimulate growth.
This is the third cut to UK borrowing costs in the current cycle, following reductions in August and November last year.
The Bank’s Monetary Policy Committee voted 7-2 to cut rates, after seeing inflation fall to 2.5% in December, closer to its 2% target.
Two policymakers wanted a steeper cut, of half a percentage point.
Announcing the decision, the Bank says:
There has been substantial progress on disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations.
That progress has allowed the MPC to withdraw gradually some degree of policy restraint, while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures.
There’ll be a lot of interest in the Bank’s growth forecasts today.
Back in November, the Bank forecast the UK economy would grow by 1.5% this year.
Economists expect it to cut its projection for GDP growth in 2025, from 1.5% down to about 1%.
The City money markets indicate there’s a 95% chance that the Bank makes a quarter-point cut to interest rates at noon, bringing them down to 4.5%.
City braces for UK interest rate cut at noon
Excitement is building in the City as we await the Bank of England’s first interest rate decision of the year, due at 12pm.
Economists widely expect the BoE to cut UK interest rates to 4.5%, from their current level of 4.75%, in an attempt to stimulate growth.
But the Bank may also downgrade its UK growth forecasts and predict higher inflation this year.
Traders expect the Bank’s nine policymakers to split 8-1 in favour of a cut, with Catherine Mann voting to leave rates on hold.
Michael Brown, senior research strategist at brokerage Pepperstone, explains:
Such a move, in what is likely to be an 8-1 vote among MPC members, would mark this cycle’s third rate cut, and is set to be accompanied with largely familiar guidance, noting that a “gradual” approach will continue to be taken, that policy must remain restrictive for “sufficiently long” to bear down on inflationary pressures, and that a meeting-by-meeting approach will continue to be followed.
While the MPC may wish to ease more rapidly, sticky inflation doesn’t permit them to do so yet, and will likely also prevent any kind of dovish pivot at this stage.
Here’s our preview of today’s decision, due at noon on the dot.
Updated
More UK homes repossessed in last quarter
The number of UK homeowners having their homes repossessed has risen.
Trade body UK Finance has reported that 1,030 homeowner mortgaged properties were taken into possession in the fourth quarter of 2024, 12% more than in the previous quarter.
That suggests that the increases in UK interest rates in 2022 and 2023 have left some borrowers unable to repay their mortgages.
UK Finance point out, though, that repossessions are significantly less than the long-term average.
The group says:
Possessions numbers increased, but remain very low compared to historic norms. A total of 1,730 homeowner and BTL mortgaged properties were repossessed in Q4 2024. For comparison purposes, this is 87 per cent lower than the 13,200 seen in Q1 2009 and 13 per cent lower than the 1,990 seen in Q4 2019, before the pandemic.
The number of homeowner mortgages in arrears fell by two per cent in Q4 2024 compared to the previous quarter.
The latest data from @UKFtweets showed mortgage arrears when compared to the previous quarter, fell for both residential and buy-to-let mortgages while repossessions increased. Up 12%, with 1,030 homeowner mortgaged properties being taken into possession while buy-to-let… pic.twitter.com/srBN6XmSJJ
— Emma Fildes (@emmafildes) February 6, 2025
Bad weather in January may also have hurt construction output, keeping builders and craftspeople off construction sites.
Kelly Boorman, national head of construction at accountancy firm RSM UK, says:
“The headline construction PMI saw a sharp fall in January, continuing the downward trend seen at the end of 2024. The latest downtick comes amidst falls across the board, demonstrating a loss of confidence and increased uncertainty post-Budget, as well as the usual seasonal slowdown expected at the start of Q1. Adverse weather conditions including Storm Eowyn also brought construction activity to a temporary halt.
The fall in civil engineering activity further reflects prolonged sector nervousness and scaling down on works, as businesses are waiting on government to commit funding for infrastructure projects in the upcoming Spending Review.
“We’re still seeing a lag in project mobilisation, with legacy contracts continuing to take up management time causing further delays. Pipelines remain strong but, businesses are being cautious about procurement to manage tight margins and ensure they have appropriate capacity and secured supply chains. As a labour-intensive industry, construction is also bracing for post-Budget headwinds including rises to employers’ National Insurance contributions which could worsen labour shortages. It’s therefore unsurprising to see a slowdown in construction activity, specifically housing which has the added complexity of changing mortgage rates and the removal of Help to Buy, leading housebuilders to reduce their volumes to avoid stockpiling.”
British households’ expectations for inflation fell in January, news which should cheer the Bank of England.
A monthly poll published by Citi and YouGov today shows that expectations for inflation in a year’s time fell to 3.5% in January, down from 3.7%.
Looking further ahead, expectations for inflation in five to 10 years’ time dipped to 3.7% from 3.9%.
That’s still rather higher than the BoE’s target of 2% inflation.
A cut to UK interest rates at noon today could give the construction sector a much-needed lift.
Brian Smith, head of cost management and commercial at construction engineering company AECOM, says:
“A winter slowdown is unsurprising given the broader economic mood but confidence will need to improve quickly if the sector is to regain some of 2024’s momentum and deliver on the government’s growth agenda.
“After a sobering start to 2025, firms will be hoping to see further cuts to interest rates that encourage clients to green-light projects and unleash more private investment throughout the year.
“That said, contractors’ growth prospects are good this year, with pipelines suggesting there is sufficient work to go around. The speed of delivery though could be challenged their willingness to take on significant amounts of new work given the volatility of recent years and long-standing challenges around labour availability.”
Updated
The Bank of England will be concerned to hear that nearly four in 10 UK businesses are hiking prices in response to the threat of tariff hikes as fears grow over a global trade war kicked off by US President Donald Trump.
A poll of 1,500 businesses by banking giant HSBC found 39% are increasing prices in anticipation of higher tariffs.
It also revealed that half of firms are shifting their export markets to countries with lower trade barriers in an effort to side-step the worst of the hit from any trade war.
Pound lower, FTSE 100 at new high
The pound has weakened further after this morning’s weaker-than-expected UK construction PMI report.
Sterling is now down almost a whole cent against the US dollar, at $1.242.
That’s lifting shares in multinational companies listed in London, which has pushed the FTSE 100 to a new alltime high of 8,733 points, up 1.25% today.
Today’s poll of purchasing managers at UK construction firms also found that input costs jumped at the fastest rate since April 2023, even though demand for construction products and materials fell.
The PMI report explains:
Construction companies noted that suppliers had sought to pass on rising energy, transportation and staff costs. Moreover, vendor performance deteriorated to the greatest extent for two years, which was partly linked to shipping delays.
UK housebuilding decreased for the fourth successive month in December, and at the fastest pace since January 2024, today’s PMI report shows.
General economic uncertainty, rising outgoings and stubborn rates; knock construction confidence. All three categories of construction work in @SPGlobalRatings UK constuction PMI showed a reduction in output during January 2025. The lack of civil engineering activity was put down… pic.twitter.com/2RI2CpMWDd
— Emma Fildes (@emmafildes) February 6, 2025
UK construction sector shrinks amid economic uncertainty
Newsflash: Britain’s construction sector shrank unexpectedly last month, new data shows, raising concerns over the health of the UK economy.
Data provider S&P Global reports that business activity declined across UK construction in January for the first time since February 2024.
Output fell across housebuilding – despite the Labour government’s pledge to boost home construction – commercial property work and civil engineering.
Firms also reported a renewed fall in their order books, blamed on delayed decision-making by clients and general economic uncertainty.
This pulled the UK construction PMI down to 48.1 in January, down sharply from 53.3 in December, and below the 50-point mark showing stagnation.
This highlights the pressure on the Bank of England to cut interest rates at noon today to support the economy, and make borrowing cheaper.
Tim Moore, economics director at S&P Global Market Intelligence, says:
“UK construction output fell for the first time in nearly a year as gloomy economic prospects, elevated borrowing costs and weak client confidence resulted in subdued workloads.
Output levels decreased across the board in January, with particularly sharp reductions seen in the residential and civil engineering categories.
Construction firms noted the fastest fall in residential work for 12 months as market conditions remained somewhat subdued. Anecdotal evidence suggested that caution regarding demand for new projects was prevalent at the start of 2025, despite strong policy support for house building and hopes for a longer-term boost to supply via planning reform.
The forward-looking survey indicators were also relatively downbeat in January. New orders decreased at the fastest pace since November 2023 amid many reports of delayed decision-making by clients. Reduced workloads, combined with concerns about the general UK economic outlook, led to a dip in business activity expectations to the lowest for 15 months.
50=no monthly change in construction activity & the PMI was 48.1 in January, down from 53.3 in December. Firms reported delayed client decisions on major projects & general economic uncertainty weighed on activity in January. (2/n)#ukconstruction #ukhousing pic.twitter.com/HIMnNXLyRH
— Noble Francis (@NobleFrancis) February 6, 2025
The Bank of England is likely to cut interest rates at noon today to fight off the risk of the UK falling into recession.
It could also hint at further rate cuts soon, as Andrew Wishart, senior UK economist at Berenberg, explains:
● Fending off another recession: Alongside a widely anticipated 25bp reduction in the bank rate this Thursday 6 February, the Bank of England (BoE) may hint that it could lower interest rates again in March. Until now, the BoE has cut at alternate meetings, but a stagnating economy and declining employment argue for more urgent action. The central bank judged the labour market to be broadly in balance at the 18 December meeting, before payroll data for December revealed further job losses. On that basis, it is sensible for the BoE to lower interest rates to prevent a larger drop in employment. Chart 1 shows that policymakers tend to take corrective action when surveys of employment slump.
● New forecasts will support rate cuts: The BoE’s new forecast will be based on two interest rate cuts this year (market pricing during the 15-day averaging window in late January) as opposed to four in the previous edition. This, alongside disappointing growth, will depress the GDP and inflation projections. Quarterly GDP growth was zero in Q3 and most likely in Q4 too, falling short of the BoE’s forecasts of 0.2% qoq and 0.3% qoq respectively. Therefore, we expect the BoE to revise down its GDP forecast for 2025 from 1.5% yoy to 1.0% and lower its forecast for CPI inflation for Q1 2027 from 2.1% yoy in November to about 1.7%. A forecast of below 2% inflation in two years’ time is a signal that looser policy is needed.
● Not that simple: Not all of the Monetary Policy Committee (MPC) will be on board with that message, and the most hawkish member, Catherine Mann, is likely to dissent by voting to hold the policy rate unchanged at 4.75%. Rate cuts would be uncontroversial if the current downturn were driven purely by demand – but we doubt it is. In our view, the recent fall in employment is instead primarily a consequence of an impending rise in labour costs. A further increase in the minimum wage and a hike in payroll taxes on 1 April will raise the cost of low-paid and part-time employment substantially. The MPC has so far played down the acceleration in average weekly pay growth as a volatile aberration. But our analysis shows that the compression of the bottom half of the pay distribution by increases in the minimum wage over recent years means that the policy is now exerting upward pressure on headline measures of pay growth. A big increase in costs is a supply shock, and not one that monetary policy can directly counteract.
AstraZeneca’s shares are now up 5% after it beat City forecasts for revenue growth this morning.
That’s helping to drive the FTSE 100 to a new intraday peak (now 8,713 points!) this morning, as AstraZeneca is the most valuable company on the index.
Neil Wilson, analyst at TipRanks, reports:
The FTSE 100 hit a record high clear of 8,700 thanks to strong numbers from its largest weighting AstraZeneca, while traders in London also looked on hopefully to an expected rate cut by the Bank of England. The FTSE 100 rose 1% and the DAX added about 0.8% while the CAC in Parise rose 0.4% as European shares turned broadly higher amid a deluge of positive corporate earnings.
The record high shows that for all the doom and gloom, talk of trade wars and tariffs, and broad geopolitical risk, investors keep putting money to work at companies with good valuations.
Blockbuster cancer drugs helped AstraZeneca to beat quarterly estimates with revenues up 21%, sending shares up 5% to top the blue chips, while Anglo American dragged the miners sharply higher.
Updated
The FTSE 100 has made a fairly rollicking start to the year.
Since the start of 2025, the blue-chip share index has gained 6.5%, which is actually more than the 5.7% it gained during 2024.
The UK market may be benefiting from a ‘rotation’ out of technology stocks, where AI-focused firms were hit by the emergence of China’s DeepSeek last month.
Updated
FTSE 100 climbs over 8,700 to new high
Boom! The FTSE 100 index has now climbed over the 8,700-point mark for the first time.
The index has now gained almost 1% today to 8,704 points, a new record.
Today’s FTSE 100 record high comes almost five years after the markets crashed at the start of the Covid-19 pandemic.
In February 2020, the FTSE recorded its biggest weekly losses since 2008, briefly dropping through the 5,000 point mark in early March 2020 before rebounding:
Evelyn de Rothschild left bank in 2004 after sexual misconduct complaint
The financier Sir Evelyn de Rothschild left the bank that bears his family name in 2004 after an investigation into a sexual misconduct complaint, it has emerged.
Staff at Rothschild & Co were told on Wednesday that the late banker, who was a financial adviser to Queen Elizabeth II, left in March 2004 after the complaint in late 2003.
The Guardian revealed on Tuesday that several women had accused De Rothschild, who died aged 91 two years ago, of exploiting his position at the bank to abuse them while they worked with him.
Among the allegations are that he seriously sexually assaulted and harassed several women in the mid and late 1990s when they worked for NM Rothschild.
Markets across Europe are rallying, as “investors get some confidence back”, reports Matt Britzman, senior equity analyst at Hargreaves Lansdown, helping to push the FTSE 100 to a new all-time high.
Britzman says:
“UK markets are kicking off the day with a spring in their step, as the US tariff chatter finally quietens down, letting investors zero in on a wave of big earnings reports and hopes for another Bank of England rate cut - markets are practically betting the house on a quarter-point cut today.
This positive vibe is spreading across Europe, giving global markets a much-needed boost. Seems like investors may be ready to dance to the tune of good news again.
Germany’s DAX has risen by 0.6% in early trading, while France’s CAC is up 0.4%.
Updated
FTSE 100 hits new record high
Britain’s blue-chip share index has hit a new all-time high at the start of trading, as investors anticipate a cut in UK interest rates today.
The FTSE 100 index has gained 0.8% to a new intra-day peak of 8,695 points, up 72 points today, above the previous record of 8,692 points set last month.
Anglo American (+3.7%) are the top riser, after reporting this morning that all its businesses delivered their full year production guidance last year (although it also warned of tough trading in the diamond market).
They are followed by AstraZeneca (+3.4%) after it reported a jump in profits this morning.
The FTSE 100 slumped on Monday amid fears of a global trade war, but has recovered since Donald Trump paused tariffs on Canada and Mexico for a month.
Jim Reid, strategist at Deutsche Bank, says:
After a severe allergic reaction on Monday after the tariff news, markets continued to be relatively sedated yesterday as investors continued to price out the chance of aggressive tariffs.
Updated
AstraZeneca profits jump
AstraZeneca has reported a jump in annual profits boosted by strong sales of its cancer, lung and immunology treatments, a week after it decided not to go ahead with a planned £450m investment in Merseyside, prompting a series of recriminations with the government.
Britain’s biggest drugmaker, which is also the largest listed company, said revenues rose by 21% to $54.1bn (£43bn) in 2024. Pre-tax profit jumped by 38% to $8.7bn last year on a constant currency basis.
The results statement did not mention last week’s decision to pull the plug on the expansion of its childhood flu vaccine factory at Speke, Liverpool, into a large vaccine hub, after it failed to agree the amount of state support despite months of wrangling with government.
German factory orders have jumped, bringing some relief to Europe’s largest, and most beleagured, economy.
Industrial orders jumped by 6.9% month-on-month in December, beating forecasts of a 2% rise, but were still 6.3% lower than a year ago.
Firms reported increased demand for large-scale orders such as aircraft, ships, trains, and military vehicles, where new orders were 55.5% higher than in November “due to several large orders”, statistics body Destatis reports.
Der reale #Auftragseingang im Verarbeitenden Gewerbe ist im Dezember 2024 gegenüber November 2024 voraussichtlich um 6,9 % gestiegen. Der Anstieg ist vor allem auf den deutlichen Anstieg im Sonstigen Fahrzeugbau mit mehreren Großaufträgen zurückzuführen. https://t.co/BhYWybonJW pic.twitter.com/MfC0FvGEhw
— Statistisches Bundesamt (@destatis) February 6, 2025
Updated
Pound dipping ahead of Bank of England decision
Sterling is weakening a little this morning, as the City anticipates a cut to UK interest rates at noon.
The pound, which hit a one-month high yesterday, has lost a third of a cent against the US dollar back to $1.2473.
Bloomberg: Nissan looking for new partner as Honda deal set to collapse
Bloomberg are reporting that Nissan is seeking a new partner as it prepares to end negotiations to form a joint holding company with Honda.
The fresh ally would ideally be from the technology sector and be based in the US, the people said, asking not to be identified because the information isn’t public.
Although its sales are slowing globally, North America remains Nissan’s most important market and the wider shift toward electrification and automation is pushing all carmakers to seek alliances with hi-tech industries.
Updated
Engineering firm IMI hit by cyber attack
UK engineering firm IMI has revealed it has been hit by a cyber attack after hackers gained unauthorised access to its systems.
In a statement to the City this morning, IMI said it is responding to a cyber security incident involving unauthorised access to the company’s systems.
The London-listed company says:
As soon as IMI became aware of the unauthorised access, the company engaged external cybersecurity experts to investigate and contain the incident.
In parallel, the company is taking the necessary steps to comply with our regulatory obligations.
An update will be provided as and when appropriate.
Such cyber attacks are a growing risk for companies; in recent years. Royal Mail, the Guardian and leading London hospitals have all been hit.
A report yesterday found that ransomware payments fell by more than a third last year to $813m (£650m) as victims refused to pay cybercriminals and law enforcement cracked down on gangs.
Updated
Nissan-Honda merger 'basically over'
The $60bn merger between Nissan and Honda to create the world’s third-largest carmaker looks on the brink of collapse this morning.
According to reports from Japan, Nissan CEO Makoto Uchida met with Honda CEO Toshihiro Mibe today, and explained that he wishes to terminate their merger discussions.
A break-up would scupper the deal which was announced last December, and was
Talks have appparently stumbled after Honda proposed that Nissan should become a subsidiary, which was not part of the original plan.
The AFP newswire reports:
Nissan’s board is in favour of abandoning merger talks with Honda, although calling them off has yet to be decided by executives at the two Japanese carmakers, a source close to the matter told AFP on Thursday.
“The latest conditions put on the table by Honda are unacceptable for Nissan... It needs to be formalised, but basically, it’s over,” the source said.
Honda has a market value of ¥7.6trn ($50bn/£40bn), about five times larger than Nissan’s ¥1.54trn ($9.8bn/£7.9bn).
Bank could cut faster than City expects this year
The money markets currently indicate the Bank will cut interest rates three or four times this year.
But some, such as Pimco economist Peder Beck-Friis, think it may cut faster, telling clients:
Looking ahead, we see room for deeper cuts than what financial markets expect. Trade uncertainty is rising, labour demand is falling, fiscal policy is tight, and the policy rate is well above our neutral estimate of 2-3%.
Ashley Webb, UK economist at Capital Economics, takes a similar view, explaining:
Despite the recent weak news on activity and the uncertainty around the global outlook due to Trump’s US import tariffs, the stronger news on domestic price pressures means the Bank of England will probably continue to cut interest rates only gradually.
But while CPI inflation may rebound from 2.5% in December last year to around 3.0% later this year, we think a fall to below 2.0% next year will prompt the Bank to cut interest rates from 4.75% now to 3.50% by early 2026, rather than to 3.75-4.00% as investors anticipate.
Bank of England likely to cut growth forecasts
The backdrop to today’s Bank of England decision is “underwhelming”, points out Kathleen Brooks, research director at XTB, which could prompt the central bank to predict lower growth this year.
Brooks says:
UK growth has weakened in recent months and the outlook looks poor. The OBR is expected to slash its growth forecasts next month, which will be included in the chancellor’s spring statement. The Bank of England is likely to do the same this Thursday.
The BoE had expected GDP to expand by 1.5% this year, that looks lofty after a spate of weak economic data, and it could be revised down to 1%. The risk is that growth could undershoot downwardly revised forecasts, as the Citi economic surprise index is close to its lowest level for a year.
This suggests that UK economic data has surprised to the downside by a wide margin.
Updated
Introduction: Bank of England expected to cut rates today
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The UK is likely to get its first interest rate cut in three months today, as the Bank of England tries to prod the stagnating economy into life.
The City is confident that the BoE will ease policy at noon today – a cut to Bank Rate, from 4.75% to 4.5%, is a roughly 95% prospect according to money market pricing (it was as high as 98% earlier this week).
Economists predict the Bank’s monetary policy committee (MPC) will vote 8-1 to cut, with only the hawkish Catherine Mann opposing a reduction in borrowing costs for the first time this cycle.
It may also lower its growth forecasts for this year, and raise its inflation forecast in its latest monetary policy report [MPR]. That would be awkward for chancellor Rachel Reeves ahead of next month’s spring statement.
Sanjay Raja, Deutsche Bank’s chief UK economist, says:
Downgrades to GDP growth across the forecast horizon look likely, particularly given the weaker H2-24 data. Equally, a faster rise in the jobless rate looks likely too, with the Bank’s unemployment rate projection rising to 4.6%.
While near-term pay growth will almost certainly be revised higher, we expect private sector pay momentum to broadly converge to the Bank’s November MPR projections.
And last but not least, we expect the MPC to highlight a near-term pick up in inflation, but expect medium-term disinflationary pressures to push CPI lower at the end of the forecast horizon, relative to the November MPR.
These are difficult times for the Bank. It has already been assessing the impact of the business tax increases in last autumn’s budget, which could push up prices, hit profit margins, weaken hiring and lift unemployment.
Now, it also has the challenge of Donald Trump’s return to the White House, and the risk of a global trade war.
Mark Ashbridge, managing director of Ashbridge Partners, points out that many of Trump’s policies are inflationary – which could push up US borrowing costs, with a knock-on effect on the other side of the Atlantic.
Ashbridge explains:
“Globally, our bond markets and swap rates are interlinked and partially driven by what’s happening in the US, a country which is now under a new administration since the Bank of England last reviewed the base rate.
“Fundamentally, Donald Trump’s policies are inflationary and what we don’t know at this stage is just how extreme or not these changes might be and therefore the impact of them.
The agenda
9am GMT: European construction sector PMI
9.30am GMT: UK construction sector PMI
10am GMT: Eurozone retail sales for December
Noon GMT: Bank of England interest rate decision
12.30pm GMT: Bank of England press conference
1.30pm GMT: US initial jobless claims
Updated
