The Bank of England's Monetary Policy Committee has voted 5-4 to reduce Bank Rate by 25bps to 4%.
The MPC last reduced Bank Rate by 0.25% to 4.25% at its May meeting, with three members voting to reduce rates to 4% at the previous meeting in June.
Today's cut was therefore widely expected, despite CPI inflation rising to 3.6% in June.
The latest forecast from the Bank of England, published today, now shows inflation peaking at 4% in September, up from its previous prediction of 3.7%, before falling back to the 2% target in early 2027.
Richard Carter, head of fixed interest research at Quilter Cheviot, commented: “With today’s cut in interest rates, the fifth in a year, it appears the Bank of England is getting increasingly concerned about the health of the UK economy. Unemployment is rising, while growth has ground to a halt once again after what now appears to have been a false dawn in the first quarter. As such, the BoE, while still concerned about its level, is putting inflation fears on the back burner as it looks to provide some relief to businesses and consumers.
“The market hopes the Monetary Policy Committee will pull the trigger again this year, but as the division on the last few decisions shows, even that might be put in doubt with any small change to the data. Today’s vote was on a knife-edge and required a second vote, with one member voting for a bigger rate cut, while four voted for no cut at all. This divergence in views makes interest rate decisions hard to forecast and highlights the difficult position the UK economy is in.
“The problem facing the UK is that the issues show no signs of abating. Speculation is rife about which taxes will be next to be raised at the upcoming Budget and that is likely to weigh further on growth and consumer confidence, just as it did last year. It is looking like some tax rises in the past year have backfired, with employers making job cuts and wealthier individuals leaving the UK.
“This should all point to a reduction in interest rates going forward too, just as we have seen in Europe. However, global trade policies still appear uncertain, and the UK is once again battling with inflation, when others in Europe are not. It is making the job for the BoE increasingly difficult as we continue to wait for some sort of economic corner to be turned.”
Paresh Raja, CEO of Market Financial Solutions, said: “Inflation might remain above the 2% target, but a softening labour market and sluggish economic growth mean the Bank of England is justified in taking this action. More of the ‘wait-and-see’ approach looked like doing more harm than good, and this is likely to provide the UK property market with a real boost.
“Borrowers might not see an immediate changes. After all, the markets had been expecting this cut for some time, and many lenders have already reduced their rates in preparation. But every cut will be welcomed and will undoubtedly help to unleash pent-up demand, driving increased activity in the coming weeks, particularly during the typically busy period as the summer holidays draw to a close.
“Lenders need to remain proactive in the final five months of the year. The expectation is for more base rate reductions, so product repricing and flexible lending solutions are essential for supporting borrowers and their brokers. Today has brought some good news, and it’s vital the property market can capitalise on it."
Peter Stimson, director of mortgages at MPowered Mortgages, commented: “Sometimes it’s not the cut that counts - but the voting. Today is one of those days where ‘god is in the detail’.
“Even though the Bank of England Governor has been hinting for weeks that a base rate cut was all but certain, the voting pattern suggests far from uniform view among his fellow rate setters.
“For four members of the Monetary Policy Committee, last month’s inflationary blowout was sufficiently bad for them to vote to hold rates firm in an effort to rein in the rapidly rising cost of living. At 3.6%, CPI isn’t far off double the Bank’s 2% target as so far, is still heading in the wrong direction!
“Whilst the Committee’s doves have won the day with a view that the increasingly gloomy economic outlook, with slowing growth and employment warrant a cut, the narrowness of their victory will set many thinking that the next rate cut may be some time off.
“The swaps market - which largely determines fixed mortgage rates - had priced in today’s cut and indeed future rate cuts, and may well see, based on the voting pattern and minutes, a continued cautious, slow and steady approach to rate reductions in the months ahead.
"On this basis, borrowers are unlikely to see any material changes to their mortgage rates in the immediate term, simply as it is already priced into the swap curves. The only thing that is really going to drive any material change is a significant fall in CPI, allowing the hawks at the bank to agree that the beast of inflation has finally been tamed. For this, we eagerly await the inflation numbers in the weeks ahead!"
James Carter, portfolio manager at W1M, added: “With inflation surprising to the upside and expectations drifting higher, the MPC is unlikely to pre-commit to further easing after today’s cut. Assuming further labour market softening, we would still expect cuts in November and February. However, today’s move likely marks the start of a more data-dependent phase, with policymakers watching global events closely and balancing the risk of persistent inflation against a cooling jobs market. Clearer data on the impact of tariffs or another bout of global instability could easily tip the Bank’s next decision one way or another.”
