The Bank of England (BoE) has reduced its main interest rate by 25 basis points to 5%, marking its first cut since March 2020. The decision is expected to influence mortgage repayment deals and could provide relief to borrowers across the UK.
This move comes after the BoE had maintained interest rates at 5.25% since August 2023, a level not seen in 16 years, as part of its efforts to manage rising inflation. The last interest rate cut occurred at the onset of the pandemic when rates were slashed to a historic low of 0.1% to support the economy.
The BoE’s Monetary Policy Committee, which governs interest rates, voted 5-4 in favour of the reduction. Governor Andrew Bailey and four other members supported the cut from the highest rate since 2007. The decision is seen as a response to recent declines in inflation, which has fallen to the BoE’s target of 2%, down from over 11% in late 2022, the highest inflation rate in four decades.
In his statement, Bailey highlighted the need for caution in adjusting rates. He emphasised that while inflationary pressures have eased, the bank must avoid cutting rates too quickly or aggressively to ensure inflation remains stable.
Commercial banks are likely to adjust their rates in response to the BoE’s decision, affecting the interest rates that savers earn and consumer borrowing costs.
