On foreign exchange markets, the British pound also reacted positively to the BOE’s decision, rising 0.3% to $1.2929. The pound’s appreciation reflects market sentiment that, while interest rates are gradually falling, the central bank remains cautious about easing too quickly.
Response of the Minister of Finance and economic prospects
British Chancellor of the Exchequer Rachel Reeves welcomed the BOE’s rate cut, acknowledging that it would benefit households facing high costs. However, she stressed that economic pressure on families remains significant. Reeves referenced previous government budget missteps, including former Prime Minister Liz Truss’s 2022 “mini-budget,” which sparked significant market turmoil and required BOE intervention. Reeves positioned her recent budget as part of a strategy to deliver long-term economic stability and growth, although some analysts warn this could fuel inflationary pressures in the short term.
Market Forecast: Cautious Bullish Outlook
While the BOE’s rate cut reflects confidence in moderating inflation, the potential for higher inflation in 2025 and higher fiscal spending signals a cautious approach going forward. Given the large government budget, the BOE could prioritize gradual adjustments, reducing the likelihood of rapid rate cuts. This dovish stance, combined with supportive fiscal policy, suggests a cautiously bullish outlook for UK equities and government bonds in the near term, although inflationary pressures will be closely watched for shifts in the BOE’s approach.