Catherine Mann, known for her hawkish stance, unexpectedly shifted from advocating steady rates to supporting a larger half-point cut. Her reasoning was based on the UK’s weakening economic outlook, which suggests the current 4.5% bank rate is too restrictive. With inflation near target at 2.5% and economic growth stagnating, weak demand is likely to keep further price increases in check.

Economic indicators paint a bleak picture. The UK economy barely grew in the second half of 2024, with business and consumer confidence declining since Labour took office. The decision to raise employers’ national insurance contributions has increased costs for businesses, slowing hiring. Recruiters report the toughest job market conditions since the pandemic. With weak economic activity limiting businesses' ability to pass costs onto consumers, inflationary pressures remain subdued.

Despite this, caution is necessary. The BoE expects inflation to rise temporarily to 3.7% due to factors like higher energy prices and tax increases. If businesses respond by raising retail prices, the UK risks stagflation. Economic uncertainty is also high, with unreliable labor market data and potential trade disruptions.

While the case for rate cuts is strong, a gradual approach allows the BoE flexibility to respond to evolving conditions. A rapid reduction, such as Mann’s proposed 50bp cut, would be premature. Lower rates may support the economy and reduce government borrowing costs, but lasting growth depends on Labour implementing policies to drive long-term economic expansion.