Today, the Bank of England reduced interest rates by 25bps to 4.5%, marking its third cut in six months as it grapples with a stagnating economy and persistent inflation risks. Markets have been pricing in further cuts, but I believe the BoE will go further than expected, with rates dropping towards 3% within the next 12-18 months.

🔑 Key Takeaways from Today’s Decision
📉 Economic Weakness – The BoE has halved its 2025 growth forecast, now expecting just 0.75% GDP growth for the year. Business confidence remains weak, and corporate redundancies are increasing.

📈 Inflation Pressures Remain – While CPI has eased to 2.5%, services inflation is still high at 4.4%, and rising energy prices could push headline inflation back to 3% or more in Q2.

💷 Market Expectations vs Reality –
🔹 Markets are pricing in one to two more 25bp cuts, bringing rates to 4% by year-end.
🔹 Some economists see a more aggressive path, with four cuts reducing rates to 3.75% in 2025.
🔹 My view: The BoE will cut further, with rates falling towards 3% in the next 12-18 months as the economy slows more than expected.

📊 Market Reactions & Risks Ahead
🔹 Sterling Weakness – The pound fell 1.1% today, the largest drop in a month, reflecting expectations of deeper rate cuts.
🔹 Gilt Market Volatility – Earlier this year, UK bond yields spiked as investors worried about rising government debt costs. More rate cuts could ease funding pressures.
🔹 UK vs Global Rate Policy – The ECB and Bank of Canada have also cut rates, while the US Federal Reserve is holding steady, with the US economy expected to outperform other G7 nations.

🔍 How Should Firms Prepare?
With further rate cuts likely, businesses and investors must:
✅ Review funding & liquidity strategies – Lower rates will impact borrowing costs and market liquidity.
✅ Monitor currency risks – A weaker pound could affect cross-border transactions and hedging strategies.
✅ Plan for rate divergence – UK rates may fall faster than expected, while the US holds steady—how will that affect global capital flows?

⏳ The Time to Act is Now
The BoE is on a path to lower rates, but how fast and how far remains uncertain. I expect more cuts than the market currently anticipates—firms must be ready to adapt.

💬 What’s your view? Will the BoE stop at 4%, or are deeper cuts on the way? Let’s discuss.

📩 If your firm is navigating these shifts, SecFin Solutions can help. Let’s connect.

SecFin Solutions

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