The Bank of England cutt interest rates today as it bids to revive the stalling economy.
The Monetary Policy Committee voted by 7-2 to reduce the level from 4.75 per cent to 4.5 per cent.
That is the lowest point in more than 18 months – giving mortgage-payers much-needed breathing space.
Two members wanted a bigger 0.5 percentage point reduction, underlining the extent of alarm about the economic slowdown in the UK after Rachel Reeves’ huge Budget tax raid.
The Bank’s updated forecasts suggest that inflation is easing more slowly than hoped, and growth has been ‘weaker than expected’.
It has halved growth predictions for this year from 1.5 per cent to 0.75 per cent, although it is due to pick up later.
The need to kickstart activity has outweighed fears that Donald Trump’s trade tariffs will put upwards pressure on inflation – something Threadneedle Street uses interest rates to counter.
The Chancellor has been scrambling to find policies that can drive growth, but businesses have warned they face cutting jobs and pushing up prices after her national insurance hike.
There are also concerns that Ms Reeves will have to increase the burden again or cut public spending to balance the books in the coming months.
The FTSE 100 hit a new record high this morning on the news, although the Pound fell slightly against the dollar.
The Bank of England in London is pictured yesterday ahead of the base rate announcement
Efforts to combat skyrocketing inflation have left interest rates much higher than was normal in the aftermath of the credit crunch.
The base rate rose as high as 5.25 per cent in late 2023, but the Bank’s policymakers cut it to 4.75 per cent over the course of several months last year.
The last time the rate was set at 4.5 per cent was in May 2023.
The Bank typically raises interest rates when inflation is high to discourage people from spending money, thereby slowing the rate of price rises.
Now, inflation – which measures how fast prices are rising across the economy – is much lower than the highs of recent years, at 2.5 per cent per year.
Meanwhile, economic growth is stagnating across the UK, leading to predictions of another rate cut, which would encourage more spending and stimulate the economy.
However, there have been worrying signs that inflation could be on the way back up.
And Mr Trump’s threats of tariffs against major trading partners, including China, have raised concerns of a global trade war that could drive up prices sharply.
Yesterday, a survey of companies in the service sector, which includes everything from shops and pubs to finance firms and lawyers, found that cost inflation in the industry nudged up in January.
Most economists think these signs of rising inflation are unlikely to put policymakers off cutting rates today, but it could lead them to be more cautious at future meetings in March and May.
Chancellor Rachel Reeves (pictured) has been scrambling to find policies that can drive growth, but businesses have warned they face cutting jobs and pushing up prices after her national insurance hike
The rise in cost inflation is partly to do with the effect of policies announced at the October Budget.
Chancellor Ms Reeves raised national insurance contributions for companies in October.
The move was designed to give the Government more money to spend on public services like the NHS.
But some companies have complained it is pushing up costs and contributing to rising inflation.
