Midnight Surprise: Bank of England Unleashes Rate Cut and China Fund Report, Igniting Fresh Hope

[Introduction]On the night of interest rate cut, the Bank of England announced

China Fund News reporter Taylor

Brothers and sisters, tonight is the night of interest rate cut. After the Riksbank cut interest rates by 50 basis points, the Bank of England also cut interest rates by 25 basis points.

UK interest rate cut

On the evening of November 7, the Bank of England cut interest rates by 25 basis points, lowering the benchmark interest rate from 5% to 4.75%, in line with market expectations.

Members of the Bank of England’s Monetary Policy Committee voted 8 to 1 to adopt the decision, lowering the benchmark interest rate to 4.75%. This is the second time the central bank has cut interest rates this year and another adjustment since it started its easing cycle in August.

Investors will now be closely watching the latest economic outlook from its governor, Andrew Bailey, and his colleagues following the budget and US presidential election.

The Bank of England gave no hint that it would accelerate the pace of easing and warned that the budget could increase inflation by as much as 0.5 percentage points.

Not long ago, British Chancellor of the Exchequer Rachel Reeves announced a 40 billion pound (approximately $51.41 billion) tax increase and adjustments to British debt rules. The Office for Budget Responsibility warned that this could push up inflation.

“We need to ensure that inflation remains close to target so we cannot cut interest rates too quickly or too sharply,” Bailey said in a statement in London on Thursday. “But if the economy develops as expected, it is likely that interest rates will gradually fall from now on.”

Chancellor Rachel Reeves’ October 30 budget and the election of Donald Trump as US president complicate the Bank of England’s path to further easing. Britain now plans to spend 70 billion pounds ($90.4 billion) a year, nearly half of which will be financed by borrowing. Trump threatens to raise tariffs in new global trade war.

The Bank of England later released the “Monetary Policy Report” mentioning that Chancellor Reeves’ budget is expected to increase British inflation by 0.5 percentage points compared with the August forecast, and peak at 2.8% in the third quarter of 2025. .

Current consumer price growth is below the 2% target, at 1.7%. But forecasts show inflation will hit 2.5% in December due to higher energy prices. The budget stimulus will also add 0.75% to UK GDP when it peaks next year.

“There are upside risks to commodity and commodity prices, possibly from greater trade fragmentation and adverse geopolitical developments, including events in the Middle East,” the minutes of the Monetary Policy Committee meeting read.

The Bank of England said that further interest rate cuts may be the next step, but the pace will be gradual. Policymakers continue to believe that interest rates will still need to exert a discipline on economic activity to further reduce inflation.

Ahead of the meeting, investors expected three further key rate cuts next year. The Bank of England also said that if the economy develops as expected, there may be an additional interest rate cut. Investors have lowered their expectations for future interest rate cuts as a result of the budget, expecting higher government spending and corporate measures to cope with an employment tax hike to push up inflation.

Sterling rose slightly after the Bank of England decided to cut interest rates.

The Fed is about to cut interest rates

At 3 a.m. Beijing time on Friday, the Federal Reserve will announce its interest rate decision, and the market generally expects the Fed to cut interest rates by 25 basis points. The bigger question is how many more rate cuts officials expect will be needed to keep the job market strong without reversing the recent downward trend in inflation.

Powell may try to avoid answering hot-button policy questions to avoid being in the post-election spotlight. The Fed has sought to remain politically neutral, and officials have postponed the meeting by a day to give more space between a rate decision and the presidential election.

The Fed will not change their policy approach until they see what Trump does with proposed changes to taxes, tariffs and immigration policy. But if Republicans also win control of both houses of Congress, the Fed could start revising some of their fundamental assumptions at their December meeting.

Earlier this evening, the Riksbank cut interest rates by 50 basis points and signaled the possibility of further cuts in the future. The Riksbank said the policy rate could be cut again at the next monetary policy meeting in December and in the first half of 2025 if the outlook for inflation and economic activity remains unchanged.