The Bank of England has announced their first interest rate cut since 2020, almost four and a half years ago, taking the rate to 5%
Cuts to Ease Household Pressure
The cuts will ease pressure on households after the government raised borrowing costs to their highest level since the 2008 financial crisis in response to soaring inflation.
MPV Voted to Make Cuts
The Banks monetary policy committee (MPC) voted to cut its base rate by a quarter of a percentage point to 5%.
Rate at 5.25% at All-Time High
Since August 2023, the bank rate has been at an all-time high of 5.25%, the highest it has been for sixteen years.
Votes in Favour
The committee’s vote was five to four in favour of the cuts, which won by a narrow majority. Governor Andrew Bailey stated that the committee would advance cautiously.
Bank of England 2% Target Reached
There has been ample speculation regarding the cuts, but with the Bank’s target holding steady at 2% for two consecutive months, it was finally applied.
Balancing Acts for Cuts
City economists had predicted the cuts could go either way, but the financial markets expected them after the Bank reached its target.
Governor of the Bank of England Speaks Out
The governor of the Bank of England, Andrew Bailey, said that the inflationary pressure has “eased enough” to allow for the first cuts.
Warning Issued to Savers and Borrowers
Bailey has warned that borrowers and savers should expect modest reductions due to economic concerns and risks in the upcoming months.
Former PM Claiming Ties to Cut
Former Prime Minister Rishi Sunak and Shadow Chancellor Jeremy Hunt said the decision reflected their steady progress on the economy while they were in government.
Cut Is a Good First Step for Starmer
Prime Minister Sir Keir Starmer aims to uplift the economy, and the dismal living standards, and this cut is an excellent first step in the right direction.
Monetary Policy Report Released
The Bank of England released its quarterly Monetary Policy Report, which included economic growth and inflation projections.
Scheduled Meetings in the Works
The Monetary Policy Committee will meet in September to discuss the policy’s measures, with two additional meetings scheduled for November and December.
BOE Governor Not Making Predictions
Bailey has indicated that the direction of interest rates was “pretty clear” but isn’t making predictions about the pace or timeline of the cuts.
Forecasts Based on Market Curve
He also mentioned that the central bank bases its forecasts on the market curve; thus, the forward markets determine the rates.
Market Curve Determines Future Prices
The BOE governor has said that the market curve seems in a “reasonable position,” which locks in future prices.
Inflation and Wage “Coming Down Progressively”
Bailey told CNBC’s Steve Sedgwick that the Bank of England will keep analysing and monitoring the data and trends even though the inflation and wage numbers are “coming down progressively.”
Rates Risen 14 Times
Households and businesses have been under much pressure due to a huge rise in mortgage repayments. The Bank raised rates 14 times consecutively from an all-time low of 0.1% in December 2021.
Energy Prices Cause Inflation High
These hikes were in response to the highest rates of inflation experienced since the 1980s, with inflation peaking at 11.1% in October 2022, triggered by energy prices.
MPC Talk With Caution
The Monetary Policy Committee has said, “Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”
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