The Bank of England has cut interest rates by another quarter percentage point, bringing down the cost of borrowing to 4.5%.

And in a sign that households can expect more cuts in the months to come, two members of the Bank‘s Monetary Policy Committee said they would have preferred to reduce rates even more, by a full half percentage point.

Follow live reaction to interest rate cut in the Money blog

However, the Bank slashed its forecast for economic growth, forecasting that the economy will skirt clear of a formal recession only by the narrowest margin in the coming months, and downgraded its estimate of the economy’s ability to generate income. And in a further blow to the chancellor, it said her latest growth plans, unveiled in a speech last week, will add nothing to gross domestic product growth in its forecast horizon.

The Bank’s governor, Andrew Bailey, said: “It will be welcome news that we have been able to cut interest rates again today. We’ll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further.

“Low and stable inflation is the foundation of a healthy economy and it’s the Bank of England’s job to ensure that.”

The Bank’s forecasts seem to indicate that there will be at least two further rate cuts in the coming years and that that will be enough to bring inflation down towards its 2% target. However, investors are betting on more cuts.

The Monetary Policy Report and Bank forecasts released alongside the decision today signal that the economy is due to have another few years of weakness. They cut the forecast for economic growth this year, next year and the following year, as well as raising the inflation forecast. The Bank also said that the economy’s potential growth rate had dropped, down from 1.5% this time last year to 0.75% at the moment.

It said that while it expected last October’s budget to boost economic growth by 0.75%, thanks largely to greater public investment, it also expected the National Insurance rise to weigh down on activity, in particular by pulling down employment.

Analysis: Where do interest rates go from here?

It also warned that the tariffs threatened by Donald Trump on various economies posed a risk for economic growth in the coming years, though it has yet to incorporate them into its models.

Let’s start with the simple bit: interest rates have been cut – down by another quarter percentage point to 4.5%. But what happens next?

Not long ago, the answer was quite simple: the Bank of England would carry on cutting borrowing costs, one quarter point cut every three months, until they reached, say, 3.5%.

That, at least, was the expectation this time last year.

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But things have become more complex, more unpredictable in recent months.

Instead there are two paths ahead of us. One of them, let’s call it the high road, sees those borrowing costs being cut only gradually, down to 4% in a couple of years’ time.

Down the other road, the low road, the outlook is quite different: rates will be cut faster and more. They go down below 4%, perhaps as low as 3.5%, perhaps even lower.

The funny thing about today’s splurge of information and forecasts from the Bank of England is that it’s not entirely clear whether we’re on the high road or the low road anymore.

Now, strictly speaking, the forecasts and fan charts produced by the Bank’s staff tend towards the former, more conservative view – the two cuts.

But then look at the voting patterns on the monetary policy committee (MPC), where two members, Swati Dhingra and Catherine Mann just voted for a full half percentage point cut, and you’re left with a different impression. That rates will go lower, and quickly.

And in truth, that’s what often happens when the economy is weakening.

When gross domestic product, the best measure of economic output, is flatlining or shrinking, when inflation is low (especially when you look beyond the temporary bump caused by energy prices) – that’s usually precisely the time the Bank slashes rates with abandon.

And that’s precisely the situation the UK finds itself in at the moment.

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But the problem is that a few things have complicated matters.

One is that the government decided to splurge more money in last October’s budget. That extra money sloshing around in the economy makes the Bank somewhat less willing to cut rates.

Another is that although the economy is weak, inflation is still high – indeed, the Bank actually raised its forecast for the consumer price index in today’s forecasts. Another is that the world economy has become a significantly more unstable place in recent months.

Germany is in recession. The US, under Donald Trump, is threatening tariffs on its nearest allies.

It’s not altogether clear whether the response to all this is lower interest rates.

Added to this, despite the chancellor’s best efforts, there is little evidence that her pro-growth policies are boosting economic growth – at least according to the Bank’s own forecasts.

These are tricky waters to navigate.

All of which helps explains why it’s no longer quite as clear as it once was what happens next.

My suspicion is that the Bank will end up cutting rates, probably more than those two cuts baked into its forecasts. But such forecasts are even more fraught than usual.

HSBC Holdings is to hand its new chief executive a pay package potentially worth more than £15m as part of an overhaul of its bosses’ remuneration triggered by the government’s scrapping of the EU bonus cap.

Sky News has learnt that Europe’s biggest lender, which has a market capitalisation of more than £147bn, is putting the finishing touches to an overhaul of CEO Georges Elhedery’s pay deal ahead of its annual results this month.

HSBC is understood to have been consulting leading shareholders on the plans, which will involve increasing his maximum pay to just over £15m, in recent weeks.

City sources said the proposals would see Mr Elhedery’s fixed pay roughly halved, but with significantly more generous maximum variable pay awards.

Money blog: Is UK now on new interest rate path?

When he was named as Noel Quinn’s successor last July, HSBC said he would receive a base salary of £1.38m, a £1.7m fixed pay allowance, a maximum annual bonus opportunity of roughly £3m and a maximum long-term share award of close to £4.5m.

That amounts to a total of approximately £10.5m.

Investors said they have been briefed that Mr Elhedery’s new package would scrap the fixed pay allowance altogether but incorporate higher multiples of bonus and long-term share awards.

The bank’s new finance chief, Pam Kaur, will also see her remuneration package amended along similar lines.

The changes have been drawn up by Dame Carolyn Fairbairn, the former CBI director-general, who chairs HSBC’s boardroom pay committee.

HSBC’s move to overhaul its directors’ remuneration policy, which is expected to be put to a vote of shareholders in the spring, follows that of its UK banking peer, Barclays.

Sky News revealed last month that Barclays was increasing CEO CS Venkatakrishnan’s maximum pay package to just over £14m.

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By comparison, HSBC’s market capitalisation is about three-and-a-half times that of Barclays, making it the London stock market’s third-largest company.

The decision by leading UK banks to increase their CEOs’ pay suggests that the industry is entering a more permissive climate as far as investors are concerned.

One person close to HSBC pointed out that Mr Elhedery now ran Europe’s biggest bank, but would continue to be paid less than many of his continental peers.

By comparison, the major US banks also pay their chiefs significantly higher sums.

Brian Moynihan, the boss of Charlotte, North Carolina-based Bank of America, earned $29m in 2023, while Goldman Sachs, JP Morgan and Morgan Stanley all pay their CEOs substantially more than Mr Elhedery will earn even as a maximum payout.

It comes as searching questions continue about the attractiveness of London’s stock market for international companies, with executive pay at the forefront of that debate.

Mr Elhedery took up the role of HSBC CEO in September, since when he has announced a sweeping overhaul of the bank’s operations, reorganising it along geographically distinct lines, a move which raised questions about the future of parts of its sprawling international empire.

Last month, he announced surprise cuts to parts of HSBC’s investment banking operations which will affect a significant number of its UK-based dealmakers.

In a statement issued to Sky News, an HSBC spokesman said: “The Remuneration Committee’s objective is for the pay outcomes for our executive directors to be strongly aligned with performance and shareholders’ interests.

“We will publish details with our YE results on 19 February.”

This year’s annual report will not provide an accurate comparison with Mr Elhedery’s likely pay from this year because he spent much of 2024 in the role of chief financial officer.