As expected, the Bank of England finally cut the base rate by 0.25%, to 5%, the first cut in four and a half years though it was a finely balanced decision which reflected increased confidence that the worst inflation shock in decades, was easing. The Bank of England governor, Andrew Bailey, said inflationary pressures had “eased enough” to enable the first cut since the Bank stopped ramping up borrowing costs this time last year.
The MPC was split by five votes to four, exposing divisions within the central bank’s most senior ranks, with Bailey casting the deciding vote for a quarter-point reduction.
Households which saw borrowing costs rise to the highest level since the 2008 financial crisis can look to lower mortgage rates, though the bulk remain on high fixed rates for now. But Bailey said savers and borrowers should not expect large reductions over the coming months, amid concerns about lingering risks to the economy. “We need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much,” he said. “Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country.”
Remember that Prices remain significantly higher than three years ago and are still rising despite Inflation falling back to the 2% government target in May. The Bank remains concerned over stubborn price increases in the service sector of the economy and resilience in wage growth.
So, while the Bank of England did cut, the UK economy is not out of the woods yet, and we should expect a tick up in inflation ahead, so the next few months data will still be important. And taxes of course, will continue to grind higher.
