Shocking Rate Drop: Bank of England Cuts Interest Rates to Record Low amidst Economic Turmoil

In a surprising move, the Bank of England has reduced interest rates to 4%, marking the lowest borrowing costs seen in over two years. This cut from 4.25% is the fifth reduction since last August and reflects a narrow decision among policymakers, with a split vote indicating that future cuts will be approached with caution due to inflation and growth concerns.

The Monetary Policy Report highlighted expectations of inflation peaking at 4% in September, which is double the Bank’s target. Despite this, sluggish economic growth and a softening jobs market influenced the rate cut. Andrew Bailey, the Bank’s governor, underscored the delicate balance ahead, stating that further rate adjustments would be made gradually as they monitor inflation closely.

Businesses have reported significant cost increases, particularly in food prices, attributed to higher National Insurance Contributions and living wages. As a result, consumers are changing their buying habits, opting for less expensive options. The report indicates that job vacancies are declining and wage growth is stalling, creating uncertainty for many households.

The new 4% rate will provide relief to some homeowners, particularly those with tracker mortgages. For instance, borrowers with a standard variable rate mortgage of £250,000 will see repayments drop by approximately £40 per month. However, many will face higher remortgaging costs than previous years. Stories like that of Adam Christie illustrate the mixed impact of these cuts, with many borrowers anxious about future rate hikes.

The Monetary Policy Committee remains divided on the decision, complicating predictions for future rate cuts. Analysts warn that the likelihood of additional reductions by the end of the year is diminishing, with the Bank adopting a cautious stance. While Chancellor Rachel Reeves welcomes the cut as beneficial for families and businesses, critics argue that the changes should have occurred sooner. Overall, the Bank anticipates sluggish GDP growth, currently expected at just 0.1% for the April to June period, reflecting an economy that continues to face significant challenges.