The Crypto Market Surge as UK Slashes Interest Rates by 25 Basis Point
The Monetary Policy Committee voted 8-1 in favor of the cut, with one member voting to keep rates at 5%. Moreover, the budget included tax increases and more spending
The Bank of England (BoE) announced a 25 basis point reduction in its benchmark interest rate, lowering it from 5% to 4.75%. The crypto market experienced a surge shortly after it had already factored in the rate cut, pricing it at nearly 100%.
Notably, the UK Monetary Policy Committee voted 8-1 in favor of the cut, with one member voting to keep rates at 5%. Moreover, the budget included tax increases and more spending, which is likely to drive up inflation. This could lead to a pause at the next BoE meeting in December and slower rate cuts next year
Furthermore, the decision aligns with market expectations and reflects the evolving economic landscape. The move follows a period of aggressive rate hikes aimed at curbing inflation, which has now returned to more manageable levels.
UK BOE Governor Inflation Analysis
In a statement, BoE Governor Andrew Bailey acknowledged the successful containment of inflation, attributing it to the bank’s prior rate hikes.
He noted that Britain’s Consumer Prices Index (CPI) stands at 1.7%, the lowest level since 2021 and below the two-percent target. Despite this success, Bailey cautioned against premature or excessive rate cuts, emphasizing the need to ensure inflation remains close to the target.
The BoE anticipates GDP growth of 1% in 2024, 1.5% in 2025, and 1.25% in 2026, contingent on the key rate falling to 3.7% by the fourth quarter of 2025. This projected rate trajectory suggests a gradual easing of monetary policy.
The BoE’s action follows a similar trend among major central banks, who began reducing interest rates earlier this year after their initial efforts to combat inflation. Sweden’s central bank notably made its fourth rate cut this year, reducing borrowing costs by 0.5 basis points, marking its largest reduction in a decade.
The Federal Reserve will follow suit with its own 25 basis point rate cut later in the day. The BoE’s rate cut coincides with the recent maiden budget from Britain’s new Labour government, which featured tax rises and increased borrowing.
