The Bank of England has reduced interest rates to 5% for the first four-year period.
The bank voted by a majority of 5–4 to reduce the rate by 0.25 percentage points to 5%, marking the first fall in inflation since March 2020, where they were cut to a record low of 0.1%.
Since August 2023, the BoE held interest rates at their highest level in 16 years of 5.25%. The rate was raised to combat rising prices.
However, inflation has eased in recent months and hit the bank’s 2% target in May, remaining at the same rate in June.
The committee is responsible for setting monetary policy in order to achieve the 2% target and to maintain growth and employment.
In today’s update, the bank noted that CPI inflation is expected to increase to around 2.75% in the second half of this year, as last year’s falls in energy prices fall out of the annual comparison.
The BoE said: “The impact from past external shocks has abated and there has been some progress in moderating risks of persistence in inflation. Even though GDP was higher than expected the restrictive stance in monetary policies continues to impact the real economy. It has resulted in a more relaxed labour market as well as a lower inflation rate.
“Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”