Bank of England cuts interest rates to 4.75%

The Bank of England’s Monetary Policy Committee (MPC) has voted to cut interest rates by 0.25 percentage points to 4.75%, the second cut of this year.

Economists on the MPC voted 8-1 in favour of the cut, with the decision following the ONS’ announcement that CPI inflation fell below the bank’s target rate to 1.7% in September. While the Bank of England is forecasting inflation to rise again slightly to 2.5% by the end of the year, it recognised that both external and domestic pressures contributing to inflation were abating, although certain measures in the Chancellor’s Budget last week were expected to drive up headline inflation by 0.5 percentage points, including bus fare rises and the imposition of VAT on private education. GDP forecasts meanwhile expect an additional 0.75 percentage point boost as a result of the Budget.

The latest rate cut puts interest rates at their lowest level since June 2023, with the Bank of England’s governor, Andrew Bailey, confirming that interest rates are likely to continue to fall gradually.

The Bank of England’s forecasts for the economy expect continued uncertainty in the labour market, with high wage growth one of the persisting pressures on inflation. The one member of the MPC which voted against the rate drop argued that upcoming increases to minimum wage and employer NICs risked drawing out disinflation.