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Bank of England cuts interest rates and forecasts gradual reduction in borrowing costs

THE Bank of England cut interest rates for the second time this year today as it forecast a gradual reduction in borrowing costs.

The Bank’s monetary policy committee (MPC) announced a reduction from 5 per cent to 4.75 per cent.

Governor Andrew Bailey said Britain’s inflation falling below its 2 per cent target meant policymakers had been able to cut rates to their lowest level since June last year.

The MPC said it had taken Chancellor Rachel Reeves’s autumn Budget into consideration, particularly her decision to raise taxes for businesses.

Tax rises and higher public spending are projected to boost economic growth by 0.75 percentage points at its peak in a year, relative to previous forecasts published in August.

The Budget is also expected to increase consumer prices index (CPI) inflation by just under 0.5 percentage points in late 2026.

TUC general secretary Paul Nowak called the rate cut “the right decision” and urged the bank to keep moving with further reduction.

“With inflation now below the government’s target ongoing cuts will support the economy and relieve cost of living pressures on households and businesses,” he said.

“It’s good that the Bank’s forecast has recognised gains to growth from October’s Budget. 

“With increased investment, stronger public services and lower interest rates, the process of repairing and rebuilding Britain has begun.”

New Economics Foundation policy director Hannah Peaker said that the rates “never should have been so high for so long and we need to address the severe consequences impacting people and businesses as a result.”

She said: “High interest rates weren’t responsible for cutting inflation, which was largely determined by international factors outside the Bank’s control.

“They have however driven people into mortgage arrears and made it more expensive for our government and businesses to make vital investments, including in things like fighting the climate crisis.”

Ms Peaker said the Bank should keep interest rates down to “boost the economy and protect our quality of life.”

She said it should also take inspiration from Japan and China by “introducing a special lower interest rate for vital carbon-busting investments that will keep our energy bills down in the future.”

Ms Reeves said with interest rates “on a downward path” the Labour government is “a world away from the last parliament.”

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