The Bank of England has cut the interest rate for the fifth time in a year to 4% but warned that climbing food prices will cause inflation to jump higher in 2025.
In a tight decision that saw members of the rate-setting committee vote twice to break a deadlock, the Bank cut the rate to the lowest level in more than two-and-a-half years. Households on a variable mortgage of about £140,000 will save about £30 a month.
Andrew Bailey, governor of the Bank of England, said: “We’ve cut interest rates today, but it was a finely balanced decision. Interest rates are still on a downward path, but any future cuts will need to be made gradually and carefully.”
Money latest: What interest rate cut means for savers and borrowers
The Monetary Policy Committee (MPC), the nine-member panel that sets the base interest rate, voted in favour of lowering borrowing costs by 0.25 percentage points.
However, rate-setters failed to reach a unanimous decision, with four members of the committee voting to keep it on hold and another four voting for a 0.25 percentage point cut.
Alan Taylor, an external member of the committee, initially called for a larger 0.5 percentage point cut but after a second vote reduced that to 0.25% to break the deadlock. Had they failed to reach a decision, Mr Bailey, the governor, would have had the decisive vote.
It is the first time the committee has gone to a second vote and highlights the difficulty policymakers face in navigating the current economic climate, in which economic growth is stagnating, with at least one rate-setter fearing a recession, but inflation remains persistent.
Although the central bank voted to cut borrowing costs, it also raised its inflation forecasts on the back of higher food prices.
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