The Bank of England is expected to cut interest rates by 25 basis points, but inflation concerns persist

The Bank of England is expected to cut interest rates on Thursday, the third cut since the start of the COVID-19 pandemic in 2020, as the central bank needs to help the weakening economy cope with still-strong inflationary pressures.

Aohui foreign exchange platform official websiteThe UK economy has barely grown since mid-2024 due to concerns about tax hikes on employers by Chancellor of the Exchequer Rachel Reeves, global trade risks caused by US President Donald Trump, and rising costs.

But price pressures remain high, limiting the views of Bank of England Governor Andrew Bailey and his colleagues on plans for 2025 on Thursday.

The Bank of England's benchmark interest rate, currently 4.75 per cent, is the highest among large developed economies and is widely expected to cut by 25 basis points on Thursday, the same level as Norway and close to the Federal Reserve's 4.25-4 per cent range.

Matt Swannell, chief economic adviser at the EY ITEM Club, a forecaster, said there were growing signs of stagnation in the UK economy, which could put more pressure on Bank of England policymakers.

"This does not remove the longer-term dilemma facing the Bank of England," said Mr. Swannell. "Its latest estimates may show weaker growth than three months ago, but higher inflation in the near term."

The Bank of England will release its latest economic forecasts and interest rate decisions at 1200 GMT, and Bailey and other senior officials will hold a press conference half an hour later.

Investors expect at least three 25 basis point rate cuts by the end of 2025. A Reuters poll last month showed most economists expect the Bank of England to cut rates four times this year.

However, the Bank of England is also concerned about price pressures. Surveys show that consumers have raised their inflation expectations and businesses are planning to raise prices in the coming year. Wage growth accelerated unexpectedly in late 2024.

"The monetary policy committee's rate-cutting cycle is entering a more difficult phase," economists at Citi said in a note to clients. "The reversal in energy prices and the sharp rise in labour costs suggest that inflation will pick up again - we think it will hit 3.5 per cent in April. And this is happening in the context of a deteriorating labour market."