The UK’s central bank has cut its key interest rate to 4%, citing sluggish economic growth. But inflation, driven by rising food costs, could derail hopes of a lasting recovery.
The decision was narrowly approved in a 5-4 vote by the MPC, highlighting growing uncertainty about the country’s financial direction. Governor Bailey said more cuts could come but warned of “uncertain paths ahead.”
City analysts were surprised by the MPC’s internal disagreement. The pound rose as investors anticipated future rate policy would be more cautious than previously expected.
Food inflation is the top concern. With prices predicted to climb another 5.5%, driven by labor costs and environmental challenges, the Bank is struggling to balance inflation control with economic support.
While the Chancellor praised the cut, economic observers say her policies may be contributing to inflation. With higher taxes and minimum wage mandates, the UK’s cost-of-living crisis may not ease anytime soon.