The Bank of England (BoE) has cut interest rates to 5% which will bring relief to millions of mortgage holders and businesses.
After a sharp fall in inflation this year, Threadneedle Street opted to cut borrowing costs for the first time since raising interest rates from a record low of 0.1% in December 2021 to 5.25%.
Bank of England Governor Andrew Bailey said: "Inflationary pressures have eased sufficiently for us to cut interest rates today."
However, Bailey warned that policymakers need to be careful not to cut interest rates "too quickly or too much". "At the same time we need to keep inflation low, and be careful not to cut interest rates too quickly or too much. This to ensure low and stable inflation is the best thing we can do to support economic growth and national prosperity."
The Bank's monetary policy committee has voted by a majority of five to four to cut the Bank rate by 0.25 percentage points, to 5%.
Five members namely Andrew Bailey, Sarah Breeden, Swati Dhingra, Clare Lombardelli and Dave Ramsden voted in favor of the proposal. While four members such as Megan Greene, Jonathan Haskel, Catherine L Mann and Huw Pill voted against the proposal, choosing to keep the rate at 5.25%.
This is the first time the Central Bank has cut interest rates since the emergency rate cut in March 2020. UK consumer price inflation returned to the BoE's 2% target in May and remained there in June, down from the 41-year high of 11.1% reached in October 2022. However, high price increases in the services sector cast doubt on whether the MPC will cut rates before September.
Laith Khalaf, head of investment analysis at AJ Bell, said today's announcement was more "symbolic than substantial".
"The rate reduction marks the entry into a new phase of interest rate policy, but at the level below the reality is that the financial situation will not change much," he said.
Markets are expecting another rate cut by the Bank of England before the end of the year.
Traders have added to their expectations of a rate cut, and are pricing in a further 35 basis point reduction in borrowing costs. This means they expect at least another quarter percentage point reduction to 4.75% by the end of 2024.
