Bank of England cuts interest rates

The Bank of England has this afternoon decided to cut interest rates to 5%, down from their 16-year high of 5.25%.

Rates had been at 5.25% since August 2023, in an attempt to combat price rises across the UK, and this is the first cut since March 2020.

The last time rates were dropped was in the early days of the pandemic, when they were slashed to a record low of 0.1% to try and boost the economy.

Prior to today’s decision by the Bank of England’s rate setting committee, economists believed it was finely balanced whether the nine-strong panel would opt for a cut in rates now.

But many banks had already begun to cut fixed mortgage rates in anticipation of lower interest rates.

The vote in favour was a narrow one. A group of three committee members led by Governor of the Bank of England, Andrew Bailey, changed their vote from hold to cut, giving a 5 to 4 majority in favour, compared to a 7 to 2 vote in June.

While the cut should bring some cheer to homeowners and movers, most are stuck on fixed rate mortgages.

And it means companies can start to look forward to cheaper investment funding, while Government borrowing forecasts should begin to improve.

East Midlands Chamber chief executive Scott Knowles said: “This long-anticipated cut will be welcome news for the East Midlands business community. The easing of the cost of borrowing, albeit slightly, from its historic high for many years, will be welcome by businesses and will encourage investment into the creation of new jobs, premises, technology, plant and machinery.

“Of course, the crisis in the cost of doing business remains for many businesses and sectors after inflationary pressures over the last two years. This is simply one step in the right direction.

“While we’ve seen a gradual easing of inflation, GDP has shown growth and six out of ten respondents in our own Quarterly Economic Survey said they anticipate improvements in turnover and profit in the coming months, as well as many having reported positive results in sales and orders. Cost base pressures remain, though, and businesses won’t be complacent with today’s news.”

While there may be room for a further cut this year to below 5%, the Bank of England governor wants to avoid cutting “too quickly or by too much”.

Inflation is expected to edge back up over the target of 2% during the next few months, with inflation in the service sector remaining high.