UK and US continue interest rate cuts but sound caution on pace of reductions

Fed Chair Jerome Powell announced a 0.25 percentage point rate cut in a move that is likely to be welcome news among construction companies.

Powell said that the victory of Donald Trump in the US presidential election would have no “near-term” impact on US monetary policy and that the Fed would continue to assess data to determine the “pace and destination” of rate cuts.

Inflation in the US has slowed, leaving some room for rate cuts, and is close to the US central bank’s 2% target.

Meanwhile, the Bank of England also announced a cut in interest rates to 4.75% yesterday (7 November), in the second rate reduction this year.

That also represented a 0.25 percentage point cut from 5% and takes interest rates to their lowest level in more than a year.

But the Bank of England warned that further cuts to interest rates are likely to come gradually. Inflation is expected to increase because of new Chancellor Rachel Reeves’ Budget.

Rate cuts in the US and UK come after the Governing Council of the European Central Bank (ECB) last month decided to lower the three key interest rates by 25 basis points.

The ECB said it expected inflation to rise in the coming months, before declining to target in the course of next year. Domestic inflation is still high as wages rise at an elevated pace but labour cost pressures are expected to ease gradually, it said.

The ECB also suggested that the pace of further reductions could be gradual. It said, “The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It will keep policy rates sufficiently restricted for as long as necessary to achieve this aim.”