Bank of England cuts rates for first time in four years

The Bank cut rates by 25 basis points to 5%, as widely expected. They had been at a 16-year high of 5.25% since August 2023.

The Monetary Policy Committee voted five to four for the rate cut. The BoE said the four members who opted to keep rates on hold - Megan Greene, Jonathan Haskel, Catherine L Mann and Huw Pill- thought that there was a greater risk of more enduring structural shifts, such as a rise in the medium-term equilibrium rate of employment, a fall in potential growth and a rise in the long-run neutral interest rate, contributing to domestic inflationary persistence.

"They preferred to maintain the current level of Bank Rate until there was stronger evidence that these upside pressures would not materialise," it said.

Chris Beauchamp, chief market analyst at online trading platform IG, said: "It looks like the MPC argued long and hard over today's decision. While three members switched their vote to a cut there remains a solid caucus in favour of holding rates unchanged, which means borrowers shouldn't hold out much hope for another rate cut at the next meeting.

"While this isn't 'one and done' from the Bank of England, there does seem to be a relatively high bar to another cut this year."

Data released by the Office for National Statistics last month showed that consumer price inflation was steady in June at 2%, which is the Bank’s target. However, inflation in the services sector remained sticky, unchanged from May at 5.7%.

The Bank said on Thursday: "Inflationary pressures have now eased enough that we’ve been able to cut interest rates today.

"But this decision was finely balanced. The risks of higher inflation remain. We need to make sure inflation stays low. So we have to be careful not to cut interest rates too much or too quickly.

"We expect inflation to rise again this year, to around 2.75%. But we expect this increase to be temporary with inflation coming back down next year. Over the coming years we need to make sure that inflation will continue to stay low. High inflation has affected everyone, but it particularly hurts those who can least afford it."

Ruth Gregory, deputy chief UK economist at Capital Economics, said the Bank's accompanying guidance and forecasts suggest it will proceed cautiously.

"Accordingly, we now think the next 25 basis point cut will come in November instead of September. And the risks to our forecast are tilted towards cuts being a bit slower and smaller than we currently expect.

"Today’s decision was always going to be close. We had thought the economy’s recent strength and the stickiness of services inflation would mean the Bank waited until September. But in the end, the MPC’s concerns about the restrictiveness of policy won out, with three MPC members (Bailey, Breeden, Lombardelli) joining Dhingra and Ramsden in voting to cut rates immediately to 5.00%."