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UK interest rates cut to lowest level for more than two years UK interest rates cut to 4% in tight decision
(32 minutes later)
The Bank of England has narrowly backed an interest rate cut in a knife-edge move after it had to vote twice to reach a decision.The Bank of England has narrowly backed an interest rate cut in a knife-edge move after it had to vote twice to reach a decision.
The cost of borrowing has been reduced from 4.25% to 4% in the fifth cut since last August.The cost of borrowing has been reduced from 4.25% to 4% in the fifth cut since last August.
But the Bank's unprecedented second vote suggests further interest rate cuts will be finely balanced amid concerns that inflation will spike as businesses raise food prices to pay for increased employment costs. But the Bank's unprecedented second vote by policymakers suggests further interest rate cuts will be finely balanced amid concerns that inflation will spike as businesses increase food prices to pay for higher employment costs.
"Material increases" in National Insurance Contributions and the national living wage have added up to 2% to food prices, businesses told the Bank. The cut in interest rates will reduce monthly mortgage costs for some homeowners but it could also mean smaller returns for savers.
Inflation is now expected to peak at 4% in September, the Bank said in its Monetary Policy Report. That is twice the Bank's target rate and above the 3.8% spike it predicted in its May report. Inflation is now expected to peak at 4% in September, the Bank said in its Monetary Policy Report. That is twice the Bank's target rate and above the 3.8% rate it predicted in its May report.
Andrew Bailey, governor of the Bank of England, said the decision to cut interest rates was "finely balanced".Andrew Bailey, governor of the Bank of England, said the decision to cut interest rates was "finely balanced".
"Interest rates are still on a downward path," he said. "But any future rate cuts will need to be made gradually and carefully.""Interest rates are still on a downward path," he said. "But any future rate cuts will need to be made gradually and carefully."
LIVE: Reaction to the Bank of England's decisionLIVE: Reaction to the Bank of England's decision
While food prices have been affected by the government's decision to increase the minimum wage and National Insurance payments, the Bank said global adverse weather conditions had lifted the cost of goods such as beef, coffee beans and cocoa. Businesses told the Bank that "material increases" in National Insurance Contributions and the national living wage since April have added up to 2% to food prices.
But companies told the Bank that they expected labour costs "to continue to push up food prices in the second half of the year". The Bank said global adverse weather conditions had also lifted the cost of goods such as beef, coffee beans and cocoa.
But companies told the Bank that they expected labour costs "to continue to push up food prices in the second half of the year", and new packaging regulations will also have an effect.
Businesses said that in order to mitigate costs, they were having to cut staff.Businesses said that in order to mitigate costs, they were having to cut staff.
They also reported that shoppers were "trading down" by purchasing own-label items as opposed to branded products.They also reported that shoppers were "trading down" by purchasing own-label items as opposed to branded products.
Customers are increasingly buying "cheaper cuts of meat" and purchasing food staples in larger value packs.Customers are increasingly buying "cheaper cuts of meat" and purchasing food staples in larger value packs.
At 4%, interest rates are now at their lowest level since March 2023. This will boost some mortgage-holders and borrowers, but it is likely to mean smaller returns for savers.At 4%, interest rates are now at their lowest level since March 2023. This will boost some mortgage-holders and borrowers, but it is likely to mean smaller returns for savers.
People with tracker mortgages, which are loans that rack the Bank's base rate, should see an immediate reduction on monthly repayments. There about 600,000 people who have one. People with tracker mortgages, which are loans that track the Bank's base rate, should see an immediate reduction in monthly repayments. There about 600,000 people who have one.
The latest cut in rates means repayments on an average standard variable rate mortgage of £250,000 over 25 years will fall by £40 per month, according to financial information company Moneyfacts.The latest cut in rates means repayments on an average standard variable rate mortgage of £250,000 over 25 years will fall by £40 per month, according to financial information company Moneyfacts.
The Bank's rate-setters were split between four members who wanted to cut, four who wanted to hold and one who wanted a steeper reduction in borrowing costs. The Bank's nine member Monetary Policy Committee was split. Four members wanted to cut rates, four wanted to hold and one - Alan Taylor - wanted a steeper reduction in borrowing costs.
Looking ahead, the Bank lifted its forecast for economic growth in the short-term and said the impact of US tariffs on the UK was not expected to be as much as it thought back in May. The Bank now forecasts that GDP figures for the April-to-June quarter, due to be published next week, will show a sharp slowdown to just 0.1% growth.
However, tariffs are expected to dent economic growth to the tune of 0.2%. However, thereafter the government's trade deal with the US will help boost exports and the economy.
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