Bank of England cuts amid growth worries; our nowcasts assess the UK

The Bank of England cut interest rates on Thursday, sending the pound and bond yields lower. Even as the central bank signaled concern about inflation, the overall message suggested that the economy is a bigger worry and more monetary easing is to come. (Some policy makers even voted for a two-notch, 50-basis-point rate cut, surprising the markets.)

Policy makers slashed growth targets for coming quarters. On Feb. 13, official data for fourth-quarter growth will be released; the BoE sees 1% year-on-year growth, a significant downgrade from its 1.7% November forecast.

However, even the revised target is more optimistic than CEIC's proprietary nowcast – which is calling for an 0.9% year-on-year growth rate.

Even as it embarks on easing, the Bank of England pointed out that inflation should accelerate and peak at 3.7% during the third quarter of 2025, up from 2.6% in December 2024.

The next inflation figures are due on Feb. 17. CEIC's proprietary machine learning driven nowcast is projecting that January price increases stayed steady for now – matching the December figure.

The Bank of England is signaling that the UK faces a stagflationary dilemma, where stimulus will be used to support growth at the expense of higher prices. Its message contrasts with the US Federal Reserve – where Jerome Powell is indicating rates might be on pause amid a hot economy and sticky "supercore" inflation.

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