Bank of England cuts interest rates

The Bank of England cut interest rates from 5.25 to 5 percent.

The Bank of England (BoE) has cut interest rates from a 16-year high following a contentious Monetary Policy Committee meeting.

The BoE cut interest rates by 25 basis points to 5%.

The Monetary Policy Committee took the decision with a 5-4 majority as expected. Governor Andrew Bailey, who led the decision, said the BoE’s Monetary Policy Committee would act cautiously going forward.

“We need to make sure inflation stays low and be careful not to cut interest rates too quickly or too much,” Bailey said in a statement.

In June, the BoE voted 7-2 to keep interest rates steady.

The BoE expects headline inflation to rise to 2.75% in the final quarter of the year as the impact of last year’s sharp decline in energy prices fades, returning to its 2% target in early 2026 and falling below that rate later.

Wage growth of around 6% is almost double the rate the BoE sees as consistent with 2% inflation but is slowing in line with the central bank’s expectations.

The BoE sees the UK economy expanding by around 1.25% this year, revised up from its previous forecast of 0.5%, reflecting stronger-than-expected growth in the first half of this year.

Forecasts suggest that unemployment will rise slightly as high interest rates continue to weigh on growth, reducing upward pressure on inflation.

But the BoE acknowledged the risk that inflation pressures could be more persistent and keep inflation above target for longer than its main forecast.