Bank of England cuts interest rates for first time since March 2020

Economists at the Bank of England have voted in favour of cutting its base rate to 5%, the first cut in interest rates since March 2020.

The Monetary Policy Committee voted 5-4 in favour of the 0.25 percentage point cut in interest rates. The decision follows interest rates having been held at 5.25%, their highest level in 16 years, since August 2023 as the UK’s central bank has sort to keep high inflation under control.

Despite inflation now being at the Bank of England’s 2% target rate, the MPC anticipates a slight uplift in inflation as a result of the change. The drop in rates, however, is expected to help reduce some of the sluggishness in the UK economy by reducing financial pressures on mortgage-payers and encourage investment through making borrowing cheaper for businesses.

In their publication of the decision, the Bank of England indicated it would continue to be cautious about future reductions in interest rates until inflationary pressures in the economy had dissipated further, including wage growth, and high inflation persisting in some parts of the economy such as hospitality. A further rate cut is not expected when the MPC next meets in September, but may be more likely in November or early into 2025.

The decision by the Bank of England to cut interest rates follows similar decisions in other major economies in the last week. In the United States, its Federal Reserve has opted to hold interest rates, while in Japan, its central bank raised interest rates out of negative territory as recession has seen it slip behind Germany to become the world’s fourth largest economy.