Interest rates reach their lowest levels since 2023 after the Monetary Policy Committee voted 5-4 in favour of a cut amid falling inflation.
The Bank of England (BoE) has cut interest rates by 0.25 percentage points to 3.75%.
In a widely expected move, the Monetary Policy Committee (MPC) voted five to four in favour of bringing borrowing costs down to their lowest levels since February 2023.
On the decision, Andrew Bailey, governor of the BoE, said that they still ‘think rates are on a gradual path downward. But with every cut we make, how much further we go becomes a closer call.’
In last month’s decision to hold the rate, the BoE said that inflation had peaked and as such a rate cut was always likely to come before the end of the year.
Consumer price index (CPI) inflation fell more than expected in November, dropping to 3.2% from 3.6%. This eight-month low was driven by a fall in the cost of food and non-alcoholic drinks, according to the Office for National Statistics.
In October, CPI inflation fell for the first time in five months from its peak of 3.8% in July, August and September.
Despite these recent drops, inflation levels still remain above the BoE’s target of 2%. Yet, the MPC said that inflation ‘is now expected to fall back towards target more quickly in the near term.’
Markets have been pricing in a cut for a while and yesterday the FTSE 100 was up 0.6% with today’s cut considered a ‘done deal’.
This is the first rate cut since August. The BoE base interest rate reached 5.25% in 2023, but today marks the sixth occasion that rates have dropped 0.25 percentage points since August 2024.
Jack McRae CityWire