Since the Bank of England was granted independence in 1997, the decision was made to bring an end to the joint-longest plateau for interest rates.Since the Bank of England was granted independence in 1997, the decision was made to bring an end to the joint-longest plateau for interest rates.
The Bank of England has cut interest rates by a quarter percentage point to 5%.
The Bank’s nine-member Monetary Policy Committee (MPC) voted five to four to bring borrowing costs down, bringing to an end the joint-longest plateau for rates since the Bank was granted independence in 1997.
Lower interest rates will instantly be reflected in many savings accounts and floating rate mortgages, though those selling fixed rate mortgages had long ago reflected the likelihood of lower rates.
The decision was made by the Bank when the rate of inflation measured by the consumer price index fell to 2%, which is the objective set by the MPC.
However, according to the most recent projections generated by the Bank’s staff, inflation is expected to recover in the months ahead, reaching approximately 2.75 percent by the time the year comes to a close.
It is a watershed moment, since many economists expect the Bank to continue cutting borrowing costs in the coming months.
On the other hand, Governor Andrew Bailey cautioned that customers should not anticipate the Bank of England to reduce interest rates at the same rate that it had risen them (14 consecutive hikes between the end of 2021 and the middle the following year).
“Inflationary pressures have eased enough that we’ve been able to cut interest rates today,” he said.
“But we need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much. Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country.”
The Bank sharply upgraded its forecast for economic growth this year, from 0.5% to 1.5%. It expects the economy to expand by 0.7% in the second quarter, followed by 0.4% the quarter after that.
However, it said it had yet to incorporate 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 sources believe that the transaction is not likely to exert a discernible amount of inflationary pressure; however, the bank will conduct a comprehensive examination of the plans following the budget in October.