Bank of England cuts base rate to 4.5%

The Bank of England’s Monetary Policy Committee (MPC) has voted in favour of cutting the bank’s base interest rate to 4.5%.

Economists on the bank’s MPC were unanimous in calling for a cut in interest rates and voted 7-2 in favour of the 0.25 point decrease, with those voting against preferring a 0.5 point cut.

The fall in interest rates comes despite inflation remaining above the Bank of England’s 2% target, with CPI inflation at 2.5% for Q4 of 2024. The MPC, however, felt that domestic inflationary pressures in the economy including wage growth had slowed sufficiently to allow for the cut, although economists noted that inflation could rise to 3.7% by autumn 2025 in response to rising global energy costs. Instead, the Bank of England rate cut hopes to help accelerate economic growth by increasing the availability of credit in the economy, with GDP estimated to grow by just 0.1 percentage points in the first three months of 2025.

In light of the changes to the base rate, interest rates linked to the rate set by the Bank of England have also begun to fall.

HMRC has announced that its interest rates on late payments will fall as these are currently linked by legislation to the Bank of England base rate.

From 17 February 2025 for quarterly instalment payments, and from 25 February 2025 for non-quarterly instalments payments, new rates will take affect. Late payment interest is currently set at base rate plus 2.5%. Repayment interest is set at base rate minus 1%, with a lower limit – or ‘minimum floor’ – of 0.5%.