The Bank of England’s monetary policy committee (MPC) has announced its second consecutive interest rate cut this year, bringing the base rate down by 0.25 percentage points to 4.75%.
This decision means that the base rate is now at its lowest point since June 2023, which should make borrowing money cheaper but will reduce returns for savers moving forward. The cut had been widely priced in by analysts following headline inflation declining to 1.7% in September, the first time in over three years that inflation had fallen below the Bank’s 2% target.
However, Bank of England governor Andrew Bailey warned: “We need to make sure inflation stays close to target, so we can't cut interest rates too quickly or by too much.”
Moving forward, most market analysts predict that interest rate cuts will begin to slow down, as pressures from last week’s Budget and Donald Trump’s decisive US election victory may create inflationary fears.
Shamil Gohill, portfolio manager at Fidelity International, said: “Cost increases for companies from higher taxes, national insurance and national minimum wage will likely be at least partially passed on to consumers via price hikes next year.”
Neil Shah, executive director at Edison Group, added: “If the US economy becomes more protectionist or even moves towards a trade-war scenario, the ripple effect could impact UK inflation, as reduced global trade could stymie growth.”
All eyes will now be on the Federal Reserve, which is expected to announce its own 0.25 percentage points rate cut when it meets later on Thursday.