The Bank of England has reduced interest rates for the first time since March 2020, cutting them to 5 per cent.
The central bank’s Monetary Policy Committee met today (August 1) and voted by a majority of five to four to reduce bank rates by 0.25 percentage points to 5 per cent.
The remaining four members voted to keep the bank rate constant at its previous level of 5.25 per cent.
The committee’s report explained: “It is now appropriate to reduce slightly the degree of policy restrictiveness.
“The impact from past external shocks has abated and there has been some progress in moderating risks of persistence in inflation.
“Although GDP has been stronger than expected, the restrictive stance of monetary policy continues to weigh on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures.”
The news was welcomed by Nutmeg investment strategist, Scott Gardner, who said: “Finally – will be the sentiment for many today.
“With headline inflation holding steady for the time being at the bank’s 2 per cent target, today’s decision to cut interest rates signals the beginning of a shift in policy: away from needing to bring inflation under control and toward stimulating controlled economic growth.”
While Gardner described the cut as “modest” he argued it should help to alleviate the pressure on some household finances, especially those who have mortgages which need refinancing, and encourage consumer confidence.
Similar positivity came from Legal & General Mortgage Services managing director, Kevin Roberts, who said: “After four years, a cut to the central rate is a significant milestone, bringing with it a new and promising chapter for the property market.
“Lenders have already been lowering product rates in recent weeks based on long-term forecasts, putting us on course for 1.1 million sales this year.
“Confidence and excitement around the market has been building, and today’s decision could be the catalyst for consumers to push ahead and get their home moves over the line.”
But Hymans Robertson head of capital markets, Chris Arcari, cautioned: “With the Bank of England 0.25 per cent rate cut announced today, we think the key point is that the pace of rate cuts from here is likely to be very gradual given the current decent growth backdrop.
“While headline inflation has been at the BoE’s 2 per cent target in May and June, energy prices mean it is likely to rise in the second half of the year and is forecast to reach close to 3 per cent by the end of 2024.
“Furthermore, recent data on GDP growth, services inflation, and wage growth have all exceeded the Bank of England’s forecasts recently, which, all else equal, weighs against the BoE cutting rates.
“Nonetheless, lowering rates need not mean adopting a stimulative stance – given falls in inflation, monetary policy has continued to tighten through 2024 via rising real rates, despite the last rate rise coming in August last year.
