Bank of England makes first interest rate cut since March 2020

The Bank of England has made its first interest rate cut since the start of the coronavirus pandemic in March 2020, cutting rates from their 16-year high of 5.25 per cent to 5 per cent. Following a narrow 5-4 vote by the Monetary Policy Committee (MPC), the decision to finally impose a cut today is a key move in its efforts to increase consumer confidence.

Andrew Bailey, the governor of the Bank of England, has hinted at a lack of further cuts for the foreseeable future. Amid concerns surrounding continuing inflationary pressures, Bailey said he wants to avoid cutting “too quickly or by too much”. 

Considering where inflation was a year ago, at 8 per cent, and now at 2 per cent, the Bank’s target, the Bank will likely proceed with cautious optimism. Current forecasts show that inflation will rise again over the next few months to roughly 2.75% but then should reduce back down again to the target. The Bank has also said that it does not expect inflation to be significantly increased by the public sector pay rises announced by the Chancellor on Monday. 

Rachel Reeves welcomed today’s news of a rate cut, but claimed that many families are still feeling the impact of high mortgages following Liz Truss’s disastrous mini-budget.

Today’s cut will make a difference for some mortgage-holders immediately. UK Finance has projected that payments for tracker mortgage homeowners will drop by £28 per month. And Andrew Bailey has said that the average mortgage rates are roughly one per cent lower compared to last year. However those with fixed-rate mortgages, which make up around three quarters of all mortgages, will not feel any immediate impact. It will only be felt when their current deal comes to an end.

Can we expect another cut this year? There may be scope for the Bank to reduce rates further to below 5 per cent in November. But Bailey appears reluctant to project too far into the future. 

Write to us with your comments to be considered for publication at letters@reaction.life