The Bank of England has reduced interest rates for the first time in four years.
“It is now appropriate to reduce slightly the degree of policy restrictiveness,” the Bank of England said. “The impact from past external shocks has abated and there has been some progress in moderating risks of persistence in inflation.”
The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.
At its meeting ending on 31 July 2024, the MPC voted by a majority of 5–4 to reduce Bank Rate by 0.25 percentage points, to 5%. Four members preferred to maintain Bank Rate at 5.25%.
Alpesh Paleja, Interim Deputy Chief Economist, CBI, said: “Today’s decision to cut interest rates was on a knife-edge, as illustrated by the narrow majority of the Monetary Policy Committee voting in favour. At best, there is only mixed evidence that inflation persistence has been defeated. While the labour market is loosening and wage growth slowly easing, the unexpected strength in services inflation remains a red flag.
“We still think that today’s meeting marks the start of a rate cutting cycle, but the pace of this is now more uncertain. Several MPC members will be looking for more definitive signs of inflation persistence easing, to be swayed towards reducing rates further. They will also be conscious of continued upside risks to inflation, with economic growth firming and survey measures of manufacturing pricing pressures picking up.”
