The Bank of England has cut interest rates to 4.75% at its November Monetary Policy Committee (MPC) meeting, the second reduction of UK borrowing costs in four months. Eight of the committee members voted in favour of cutting the base rate, versus one who preferred to keep it unchanged.
Bank of England governor Andrew Bailey said: “We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much. But if the economy evolves as we expect it’s likely that interest rates will continue to fall gradually from here.”
Mr Bailey, alongside policymakers Sarah Breeden, Swati Dhingra, Clare Lombardelli, Dave Ramsden, Megan Greene, Jonathan Haskel and Huw Pill voted to cut, while Catherine Mann voted to maintain the base rate at 5%. Inflation is expected to stay higher for longer than previously forecast following spending and tax rises announced in the autumn Budget, the Bank of England said.
Headline consumer price index inflation is set to return to the Bank’s 2% target in the second quarter of 2027, about a year later than previously forecast. Inflation will peak at about 2.8% in the third quarter of next year, before falling during 2026 and early 2027, partly pushed up by energy prices and the Budget measures.
Policies in the Budget are forecast to add just under 0.5 percentage points to inflation in 2026. The Bank of England said increases to employer taxes and the minimum wage announced at the autumn Budget could be “more inflationary” if prices are passed on to consumers.
Laying out the expected effects of the policies on Thursday, policymakers wrote: “On the one hand, higher labour costs could constrain firms’ cash-flows if there was limited pass-through to pricing. This in turn could moderate wage growth and further loosen the labour market through reduced labour demand.
“On the other hand, the increase in labour costs could prove more inflationary if upward pressure on prices were passed on to consumers.”
Rachel Reeves said the interest rate cut would be “welcome news” for millions of families but that households are still facing a challenge after Liz Truss’ mini-budget. “Today’s interest rate cut will be welcome news for millions of families, but I am under no illusion about the scale of the challenge facing households after the previous Government’s mini-budget,” the Chancellor said.
“This Government’s first Budget has set out how we are taking the long-term decisions to fix the foundations to deliver change by investing in the NHS and rebuilding Britain, while ensuring working people don’t face higher taxes in their payslips.”