Interest rates cut for first time since March 2020 as Bank of England slashes rate to 5%

In what has been described as a finely-balanced decision, five members of the nine-strong Monetary Policy Committee (MPC) voted in favour of dropping the rate, with four voted to keep the interest rate unchanged. Bank of England (BoE) governor Andrew Bailey said: “Inflationary pressures have eased enough that we’ve been able to cut interest rates today.”

While there is optimism at the first drop in more than four years, the BoE warned that rates will drop more gradually than they increased. Bailey said that worked needs to be done by policymakers to “make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much”. He added: “Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country.”

The BoE also said that it expects the UK economy to grow by 1.25% this year, which is higher than its previous forecast. However, the outlooks for growth in 2025 remains unchanged at 1%.

Chancellor of the Exchequer Rachel Reeves said: “While today’s cut in interest rates will be welcome news, millions of families are still facing higher mortgage rates after the mini-budget. That is why this Government is taking the difficult decisions now to fix the foundations of our economy after years of low growth, so we can rebuild Britain and make every part of our country better off.”