The Bank of England (BoE) has today voted to cut interest rates by a quarter of a percent, from 5.25% to 5%.
The Bank’s Monetary Policy Committee (MPC) decided, by a narrow five-to-four vote, to reduce borrowing costs – ending one of the longest periods of stable interest rates since the BoE first gained independence in 1997.
This rate cut will affect many savings accounts and floating rate mortgages – although many fixed-rate mortgage offerings had already factored in the possibility of the decision.
The move follows a drop in the consumer price index (CPI) inflation rate to the MPC’s target of 2%. Despite this, new BoE forecasts predict inflation will rise to approximately 2.75% by the end of 2024.
This decision marks a significant moment in the UK economy’s post-pandemic recovery and many economists believe the Bank may continue to lower borrowing costs in the near future.
However, it’s worth noting that BoE Governor Andrew Bailey has cautioned against expecting a rapid series of cuts – highlighting that rates are unlikely to come down as fast as they were raised during the COVID era, which saw 14 consecutive increases from late 2021 to mid-2023.
Bailey added: “”Inflationary pressures have eased enough that we’ve been able to cut interest rates today.
“But we need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much. Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country.”
Source: Conway, Ed. Sky News. August 2024. https://news.sky.com/story/interest-rates-cut-for-first-time-in-more-than-four-years-13188603.