Bank of England cuts interest rates for second time this year

The Bank of England has cut interest rates to their lowest level since 2023.

Policymakers announced on Thursday that interest rates would set at 4.75%, down 0.25 percentage point from 5%.

It is the second reduction in rates this year and is the first time rates have been below 5% since June 2023.

Reacting to the announcement, Chancellor of the Exchequer, Rachel Reeves, said: “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.

“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.”

Rates had been sitting at 5% after being cut by 0.25 percentage points in August, the first reduction since 2020, before Bank of England committee members voted to keep them the same in September.

The cut follows official data showing the UK Consumer Prices Index (CPI) inflation fell to 1.7% in September, the lowest level since April 2021.

The slowdown, from 2.2% in August, was driven by a sharp slump in petrol prices and lower airfares.

Experts said inflation falling below the Bank’s 2% target level has encouraged policymakers to ease interest rates, releasing some more pressure on borrowers and mortgage holders across the UK.

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The Monetary Policy Committee decision comes a week after Reeves announced almost £70 billion of extra annual spending in the Budget, funded by business-focused tax hikes and additional borrowing.

The Office for Budget Responsibility (OBR) said the sharp increase in spending will contribute to higher inflation, although it will also help drive stronger economic growth.

Inflation is forecast to average 2.5% this year and 2.6% next year before coming down, assuming “the Bank of England responds” to help bring it to the target rate, the OBR said.

It has prompted economists to reel in predictions for a rapid succession of rate cuts over the next year.

The latest decision also comes a day after Donald Trump was declared victorious in the US presidential election.

Some economists said Mr Trump’s economic policies, including proposed tax cuts and higher trade tariffs, are inflationary.

This could prompt policymakers to keep interest rates higher for longer, with knock-on implications for monetary policy in the UK.

The US Federal Reserve will also announce the nation’s interest rate on Thursday, with financial markets also betting on a 0.25 percentage point reduction.

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