Bank of England cuts interest rates for first time in four years
- Shunil Roy-Chaudhuri, Personal Finance and Investment Editor
- 01 August 2024
- 3 mins reading time
The Bank of England has cut interest rates by 0.25 percentage points to 5 percent. This is the first time it has cut interest rates since March 2020, when the Covid pandemic led the world into lockdown.
The members of the Bank’s monetary policy committee took divergent views but voted 5 to 4 in favour of the cut. The Bank said ‘The impact from past external shocks has abated’ (1).
Inflation now stands at the government’s 2 percent target. But the Bank said interest rates will have to remain high ‘until the risks to inflation returning sustainably to the 2 percent target in the medium term have dissipated further’. This suggests the Bank does not expect to reduce interest rates significantly in the near term.
Even so, the Bank pointed out that ‘although [economic performance] has been stronger than expected’ high interest rates do continue to ‘weigh on activity in the real economy’. So the Bank is engaged in a balancing act between trying to keep inflation under control while seeking to support economic growth.
Steve Mann, Director of Investments at Schroders Personal Wealth, said: ‘It is pleasing to see interest rates in the UK start to be cut as inflation has now been at the government’s 2 percent target rate for the last two months. But we do not expect rates to fall quickly as inflation is likely to still remain quite stubborn. This reduction though will give some relief to hard-pressed consumers.’
The Bank’s decision was largely expected and sterling fell by 0.75 percent against the US dollar immediately after the announcement (2). We will continue to closely monitor economic events and keep you informed of developments.
Sources:
(1) Bank of England (www.bankofengland.co.uk), ‘Bank Rate reduced to 5 percent, August 2024’, 1 August 2024.
(2) Financial Times (www.ft.com), ‘Sterling drops as BoE cuts rates following knife-edge decision’, 1 August 2024.
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