UK Interest Rates Cut for the First Time in Four Years 

by Adam Tovey – Director | Independent Mortgage & Protection Adviser @ Prism Mortgage & Protection Advice

Interest Rates Cut 

Fantastic news today – The Bank of England has cut the base rate for the first time in over four years. The rate was at a 16 year high of 5.25% but has been cut by 0.25% to 5%. 

The decision marks a positive shift in monetary policy, though it is thought to have been a tightly contested with the Governor, Andrew Bailey, believed to have cast the deciding vote. 

The Economic Context & Inflation 

Mortgage lenders, banks and building societies broadly following suit with base rate changes, so the move comes as a potential relief for homeowners and first time buyers alike, along with individuals and families grappling with high living costs. 

Analysts, investors and traders had thought the cut was possible as monetary policy over the last two years and beyond has seemingly played its part in controlling inflationary pressures, with headline consumer price index inflation reducing to the Bank’s 2% target over the past two months.  However, there were voices arguing that the Monetary Policy Committee (MPC) should maintain rates as domestic inflation, services inflation and wage growth remain above 2%.  

Political Implications 

The interest rate cut will be shouted about by the Labour government, suggesting the beginnings of economic normalization within weeks of their tenure.  

Market Expectations 

Despite the rate cut, financial markets do not expect a series of sustained reductions in the coming months. Investors predict that the Bank of England might lower the base rate only once or twice more this year. 

Economic Forecasts 

Alongside the rate announcement, the Bank of England has released updated projections for UK GDP growth, indicating an improved economic outlook for the year. 

Stay tuned for further updates along with commentary on their implications for the economy and interest rates. 

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