The Bank of England has cut interest rates for the first time in four years, providing relief to mortgage borrowers facing higher living costs.
Policymakers reduced the Bank Rate from its 16-year high of 5.25% to 5%.
Previously, rate-setters had raised borrowing costs to their highest level since the 2008 global financial crisis to combat surging inflation.
Inflation had peaked at a 41-year high of 11.1% in October 2022 but has since been reduced to the Bank of England’s 2% target, where it has remained for the past two months.
The Bank of England now expects the UK economy to grow by 1.25% this year, an increase from its previous forecast.
However, policymakers maintained their growth outlook for 2025 at 1%.
Governor Bailey’s casting vote seals rate cut: Andrew Bailey, Sarah Breeden, Swati Dhingra, Clare Lombardelli, and Dave Ramsden voted in favour of cutting interest rates. Megan Greene, Jonathan Haskel, Catherine L Mann, and Huw Pill voted to keep rates at 5.25%.
The Governor of the Bank of England cautioned that policymakers must be careful not to reduce interest rates “too quickly or by too much.”
UK stocks jumped following the Bank of England’s announcement of its first interest rate cut in four years.
The FTSE 250, primarily comprising domestic companies, rose by 0.8% after policymakers voted 5-4 to lower the Bank Rate from its 16-year high of 5.25% to 5%.
The FTSE 100 increased by 0.3%, while the pound fell by 0.7% against the dollar as traders speculated that the Bank of England would implement another rate cut before the end of 2024.
Andrew Bailey said: “Inflationary pressures have eased enough for us to cut interest rates today. However, we need to ensure inflation remains low and be cautious about cutting rates too rapidly or excessively.
Maintaining low and stable inflation is the best way to support economic growth and the country’s prosperity.”
Chancellor Rachel Reeves said: “While today’s interest rate cut is welcome news, millions of families are still dealing with higher mortgage rates following the mini-budget.
That’s why this government is making tough decisions now to strengthen the foundations of our economy after years of low growth. Our goal is to rebuild Britain and ensure prosperity across the entire country.”
