The Bank of England has voted to cut interest rates from 4.75% to 4.5%, as it also slashed short-term growth forecasts for the economy. The Bank’s Monetary Policy Committee (MPC) voted for a quarter-point reduction after similar cuts in August and November last year, bringing the base rate to its lowest point since June 2023.
Governor Andrew Bailey said the cut will be “welcome news to many” but that the Bank is “monitoring the UK economy and global developments very closely, and taking a gradual and careful approach to reducing rates further”.
The Bank halved its growth forecast for the UK economy to 0.75% for this year, down from previous estimates of 1.5%, before accelerating again in 2026 and 2027. The downgrade is a blow to chancellor Rachel Reeves after Labour made growing the economy its key priority.
It also comes amid signs inflation is rising again, with forecasts pointing to a higher-than-expected peak of 3.7% later in the summer.
Charlie Evans, Money Expert at Compare the Market, said: “Many households will welcome today’s cut in the base rate. Those with mortgages, credit cards or loans have been struggling to cope with higher interest repayments in recent years. Today’s cut is a step in the right direction for more competitive deals to enter the market, which is good news for anybody looking to consolidate debt or borrow. Shopping around online and taking advantage of price comparison websites is a great way to find the right deal for your needs.”
Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, said: “Households pinning their hopes on a third interest rate cut had their wishes met today as the Bank of England reduced the benchmark interest rate to 4.5%, taking the base rate to its lowest point since May 2023. The reduction was in line with expectations.
“The rate-setting Monetary Policy Committee’s decisive 7-2 vote in favour of a cut, while two members voted for a 50-basis point cut to 4.25%, means consumers could potentially get further respite from the surge in borrowing costs triggered by 14 consecutive interest rate rises between December 2021 and August 2023.
“The latest interest rate decision will certainly deliver the cheer many households are hankering after this winter, particularly for those whose budgets are still in recovery mode from the post-pandemic cost-of-living and borrowing crises. Who gains and who loses, however, depends on individual financial circumstances.
“Those with large mortgages that will need to be refinanced, or heavy debts, are likely to be relieved by the potential for easing borrowing costs, but savers may feel disappointment at the prospect of a lower return on their savings pots. The worst of the financial squeeze may now seem to be behind us, but the rapid price rises seen in recent years are pretty much baked in and a creeping tax burden as personal allowances remain frozen temper the better news on borrowing costs.
“Easing inflation and lacklustre growth in recent months – signs that high borrowing costs are having a dampening effect on the economy – offered the impetus the central bank needed to push ahead with a rate cut. Whether this will be followed up with a fourth rate cut next month, however, is less of a dead cert.
“Consumer confidence is in the doldrums amid concerns that Chancellor Rachel Reeves’ fiscal strategy could prove inflationary – something that has already unsettled financial markets over fears the pace of further interest rate cuts could slow.”