Analysis of the Monetary Policy Prospects of the Bank of England in 2025: Against the backdrop of numerous challenges facing the global economy, the direction of the Bank of England's monetary policy has attracted much attention, and it is gradually moving towards interest rate cuts. Sanjay Raja, senior economist at Deutsche Bank, predicts that the Bank of England will implement multiple interest rate cuts in 2025, with an expected five cuts this year, an increase from the previous forecast of four. The expected changes in the number of interest rate cuts deeply reflect the downward adjustment of the UK's economic growth prospects and the dynamic changes in inflationary pressures.

1、 Slowing economic growth trend

According to in-depth research by Deutsche Bank, the Bank of England has significantly lowered its expectations for UK economic growth in 2025. The GDP growth rate was originally expected to reach 1.5%, but now it has dropped to only 0.75%. This significant adjustment stems from the weak trend of the UK economy at the end of 2024, where the slowdown in economic growth is closely linked to various factors such as consumer demand, investment confidence, and external environment.

However, from a long-term perspective, the UK economy is not without hope. The Bank of England's medium-term growth forecast remains unchanged, and it is expected that economic growth will recover to a level of 1.5% in 2026 and 2027. Deutsche Bank pointed out that the Bank of England's adjusted growth forecast is mainly affected by weak economic data at the end of 2024, rather than a fundamental change in the overall economic outlook of the UK. So, although the UK economy is under pressure in the short term, there is still potential for growth to rebound in the medium term.

2、 The complex prospect of inflation

Inflation is undoubtedly one of the key factors affecting monetary policy decisions. The Bank of England has raised its inflation expectations in its latest economic report, expecting CPI to rise to 3.7% by 2025, but this value is still below historical highs. Sanjay Raja pointed out that even if there is a possibility of inflation rising, the Bank of England still tends to implement loose monetary policy, mainly because the current economic environment and inflation expectations are full of great uncertainty.

In the short term, the Bank of England has indeed raised its inflation expectations, expecting CPI to rise to 3% by the first quarter of 2026, higher than the previously expected 2.6%. However, as the economy gradually recovers, inflation will gradually fall in the coming years, and it is expected that by the end of 2027, CPI will drop to 1.9%. This change indicates that although inflationary pressures are significant in the short term, from a medium-term perspective, price levels will gradually stabilize.

3、 Changes in the labor market

The labor market in the UK also faces certain challenges. The Bank of England has raised its expectations for the unemployment rate, expecting it to climb to 4.8% by 2025, higher than the previous forecast of 4.4%. This change fully reflects the impact of the economic slowdown on the job market. Although the Bank of England still believes that the labor market is in an "overall balance" state, the weakness of the job market is likely to lead to a decrease in wage pressure, thereby slowing down the upward pressure of inflation.

In this situation, the Bank of England is highly likely to continue implementing monetary easing policies to support economic recovery and alleviate pressure on the job market. Deutsche Bank predicts that the Bank of England will cut interest rates five times throughout 2025. This measure helps to stimulate economic growth and promote the recovery of the labor market by reducing financing costs.

4、 Conclusion

In summary, the monetary policy path of the Bank of England in 2025 will be influenced by a combination of various economic factors. In the short term, the slowdown in economic growth and rising inflationary pressures will prompt the Bank of England to implement interest rate cuts, while changes in the labor market and expectations of slowing wage growth provide necessary space for interest rate cuts. Analysts believe that the expectation of interest rate cuts may further heat up the bond market and have an impact on exchange rates and price fluctuations of financial assets. Despite many uncertainties, Deutsche Bank's forecast indicates that the Bank of England will maintain a loose monetary policy in 2025 to support economic recovery and actively address inflation challenges.