Relief as Bank of England cuts interest rates for first time in four years

The Bank of England has 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.

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.

Richard Beresford, chief executive of the National Federation of Builders (NFB), said: “We welcome the Bank of England’s decision to cut the base rate. From housing and commercial premises to renewables and roads, more affordable lending will help more projects get off the ground.
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However, the clear message from the announcement was to not expect continued cuts, as the Governor of the BoE is cautious about cutting rates too quickly or by too much. This places greater pressure on the Government to deliver strategic reforms across planning, procurement, and regulation, which are essential to relieving some of the financial burdens that currently stop projects being delivered.”