The Bank of England (BoE) has cut interest rates for the first time in four years, with the rate falling to 5%.
The bank voted by a majority of 5–4 to reduce the rate by 0.25 percentage points to 5%, marking the first fall in inflation since March 2020, where they were cut to a record low of 0.1%.
The BoE had previously held interest rates at a 16-year high of 5.25% since August 2023. The rate had been hiked to combat rising inflation.
However, inflation has eased in recent months and hit the bank’s 2% target in May, remaining at the same rate in June.
The committee sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.
In today’s update, the bank noted that CPI inflation is expected to increase to around 2.75% in the second half of this year, as last year’s falls in energy prices fall out of the annual comparison.
The BoE said: “The impact from past external shocks has abated and there has been some progress in moderating risks of persistence in inflation. Although GDP has been stronger than expected, the restrictive stance of monetary policy continues to weigh on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures.
“Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”
