Interest rates reduced for the first time in more than four years | Business News

The Bank of England cut interest rates by a quarter of a percentage point to 5%.

The Bank’s nine-member Monetary Policy Committee (MPC) voted five to four to reduce borrowing costs, ending the longest rate plateau since the Bank gained independence in 1997.

Lower interest rates will be instantly reflected in many savings accounts and floating rate mortgages, although those selling fixed rate mortgages have long reflected the likelihood of lower rates.

The Bank’s decision came after the consumer price index inflation rate fell to 2% – the target of the MPC.

However, updated forecasts from Bank staff suggest inflation it will recover in the coming months, rising to around 2.75% at the end of the year.

It is a decisive moment as many economists expect the Bank to continue to reduce borrowing costs in the coming months.

However, Governor Andrew Bailey warned that consumers should not expect the Bank to reduce rates as quickly as it increased them (14 successive increases between the end of 2021 and mid-2023).

“Inflationary pressures have eased enough that today we can cut interest rates,” he said.

“But we need to make sure inflation stays low and be careful not to cut interest rates too quickly or too much. Ensuring low and stable inflation is the best thing we can do to support economic growth and prosperity in the world.” country.”

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The Bank drastically improved its forecast for economic growth this year, from 0.5% to 1.5%. It expects the economy to expand 0.7% in the second quarter, followed by 0.4% in the following quarter.

However, it said it has not yet incorporated the impact of any measures introduced by Rachel Reeves into its forecasts. The nine MPC members were briefed on the new chancellor’s latest fiscal announcement earlier this week – about a “black hole” in the public finances and various measures to fill it.

That announcement included a 5.5% pay increase for public sector workers.

Bank Insiders say the deal is unlikely to trigger noticeable inflationary pressure, but it will carry out a full audit of the plans after the budget in October.