Bank of England announces 0.25 point cut to interest rate

Economists at the Bank of England have voted to cut its base interest rate by 0.25 percentage points to 4%, its lowest level in two years.

The bank’s Monetary Policy Committee (MPC) voted 5-4 in favour of the cut, with those against opting to hold rates at the previous level in light of inflationary pressures on the economy. The decision to cut rates comes in spite of recent rises in inflation, which has increased to well above the Bank of England’s target 2% rate to 3.5%. The bank’s current estimates expect inflation to continue to rise to peak at 4% in September, before falling again.

While raising interest rates is typically favoured to slow inflation, the Bank of England decision to continue to lower its base interest rate aims to instead help stimulate economic growth by improving access to credit and facilitate businesses to invest. One MPC member who backed the rate cut also had preferred a 0.5 percentage point cut in a previous vote.

It is also hoped that reducing interest rates will help encourage more consumers to spend money in the economy, or to invest their savings elsewhere to achieve higher returns to help support growth. Average savings rates published today (7th August) ahead of the interest rate decision from the Bank of England reveal that savers are getting an average 2.9% return on an easy access ISA.

The decision to reduce interest rates, the Bank of England’s fifth such decision since August 2024, will also be welcome news for homeowners. The latest average mortgage rates published today have seen average interest fall back to more normal conditions, with short-term deals offering better rates than longer-term fixed rates for the first time since September 2022. Those on tracker mortgages, which follow the base rate, will see an immediate fall in their interest rates, while those on fixed term deals will need to wait until their deal expires to take advantage of the reduction in interest rates