Bank of England Cuts Rates Amid Job Market Fears

The Bank of England has implemented a significant interest rate cut, lowering the Bank Rate from 4% to 3.75%. This decision comes as policymakers observe increasing signs of a protracted downturn in the UK's job market and a projected economic stagnation. The central bank now forecasts zero growth for the last three months of the year, a downward revision from previous estimates, indicating a generally subdued economic climate.

Governor Andrew Bailey highlighted the risk of a more severe jobs market decline, with unemployment nearing a five-year high. Despite these concerns, the Bank anticipates that recent fiscal measures will contribute to bringing inflation down towards the 2% target as early as April. Inflation has already shown a downward trend, falling to 3.2% in November from 3.6% in October.

However, the Monetary Policy Committee's decision was not unanimous, with a 5-4 split revealing internal divisions. While the rate cut is expected to lead to cheaper mortgage deals, some members remain wary of persistent high pay growth not matched by productivity increases. The scope for further substantial rate reductions is considered limited, suggesting a cautious approach to future monetary policy.