The Bank of England has cut interest rates for the second time this year, in good news for mortgage-holders and other borrowers.
Policymakers at the Bank of England opted to reduce interest rates to 4.75 per cent today, down from 5 per cent. They had also been cut by 0.25 percentage points in August, which marked the first reduction since 2020, before being kept the same in September.
Since then, the latest official data showed UK Consumer Prices Index (CPI) inflation fell to 1.7 per cent in September, the lowest level since April 2021 and down from a 41-year high of 11.1 per cent in 2022.
The slowdown, from 2.2 per cent in August, was driven by a sharp slump in petrol prices and lower airfares.
The decision by rate-setters today comes after chancellor Rachel Reeves announced nearly £70bn of extra annual spending, funded by business-focused tax hikes and additional borrowing, and as the UK awaits the impact of a second Donald Trump presidency in the United States.
Key points
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Bank of England cuts interest rates by 0.25 per cent
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Pound rallies after Bank announces rate cut and inflation forecasts
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Inflation below 2 per cent target for the first time in three years
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Budget could threaten longer-term interest predictions
Tory shadow chancellor hits out at Labour over new inflation forecasts
12:31 , Andy Gregory
Shadow chancellor Mel Stride said: “This will be welcomed by millions of homeowners and builds on the work the Conservatives did in office to hold inflation down.
“However, the independent OBR and the Bank of England set out that as a result of Labour’s choices in the Budget last week inflation will be higher. The government must not undo the hard work the last government did.”
Pound rallies after Bank announces rate cut and inflation forecasts
12:21 , Andy Gregory
The pound strengthened after the Bank’s latest rate cut and as it hiked its inflation outlook, partly due to measures announced in the Budget.
Sterling lifted 0.4 per cent against the US dollar to $1.293, and was 0.2 higher against the euro at €1.202.
Likely that interest rates will keep falling, says governor Andrew Bailey
12:20 , Andy Gregory
Governor Andrew Bailey said UK inflation falling below its 2 per cent target meant policymakers had been able to cut rates to their lowest level since last June.
“We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much,” he said.
“But if the economy evolves as we expect, it’s likely that interest rates will continue to fall gradually from here.”
Bank weighs impact of increased minimum wage and employer taxes
12:11 , Andy Gregory
As it forecast that policies in Rachel Reeves’ Budget would push inflation up by 0.5 per cent in 2026, the Bank of England said increases to employer taxes and the minimum wage could prove to be “more inflationary” if prices are passed on to consumers.
Laying out the expected effects of the policies on Thursday, policymakers wrote: “On the one hand, higher labour costs could constrain firms’ cash-flows if there was limited pass-through to pricing. This in turn could moderate wage growth and further loosen the labour market through reduced labour demand.
“On the other hand, the increase in labour costs could prove more inflationary if upward pressure on prices were passed on to consumers.”
Budget forecast to increase inflation by 0.5 per cent in 2026, Bank of England says
12:08 , Andy Gregory
Inflation is expected to stay higher for longer than previously forecast following spending and tax rises announced in Rachel Reeves’ Budget, the Bank of England said.
Headline consumer price index (CPI) inflation is set to return to the Bank’s 2 per cent target in the second quarter of 2027, about a year later than previously forecast.
Inflation will peak at about 2.8 per cent in the third quarter of next year, before falling during 2026 and early 2027, partly pushed up by energy prices and the Budget measures.
Policies in the Budget are forecast to add just under 0.5 percentage points to inflation in 2026.
Interest rate cut is welcome news for millions of families, says Rachel Reeves
12:06 , Andy Gregory
Following the Bank of England’s decision to cut the base rate, chancellor Rachel Reeves, said: “Today’s interest rate cut will be welcome news for millions of families, but I am under no illusion about the scale of the challenge facing households after the previous government’s mini-budget.
“This government’s first Budget has set out how we are taking the long-term decisions to fix the foundations to deliver change by investing in the NHS and rebuilding Britain, while ensuring working people don’t face higher taxes in their payslips.”
Bank of England cuts base rate by 0.25 per cent
12:04 , Andy Gregory
The Bank of England’s Monetary Policy Committee has voted eight to one to cut interest rates by 0.25 per cent.
In a boost for borrowers, the base rate now sits at 4.75 per cent. It marks the second cut since 2020, after rate-setters narrowly opted to reduce rates from a 16-year high of 5.25 per cent in August.
Bank rate-setters expected to vote eight to one in favour of cut
11:46 , Andy Gregory
Economists expect that the Bank of England’s nine-member Monetary Policy Committee will vote in favour of a cut, after voting five to four in favour of the most recent cut in August.
A Bloomberg survey found economists expect the vote will be split eight to one this time, with Catherine Mann expected to be the only hawk opposing a cut.
UK could attempt to talk Trump out of tariff war, Reeves tells MPs
11:33 , Andy Gregory
The UK will make “strong representations” to Donald Trump about plans for tariffs which could hit British economic growth, and will use the months before Mr Trump’s inauguration in January to “prepare for different eventualities”, Rachel Reeves has said.
The chancellor added that she is not “sanguine” about the president-elect’s plans, but is “optimistic” about the UK’s ability to shape the global economic agenda.
Mr Trump has said he wants to increase tariffs on goods imported from around the world by 10%, rising to 60 per cent on goods from China, as part of his plan to protect US industry.
Higher US import tariffs would reduce global economic growth by about one percentage point over the next two years, according to analysis from the National Institute of Economic and Social Research (Niesr).
For the UK, Niesr estimates economic growth would slow to 0.4 per cent in 2025, down from a forecast of 1.2 per cent.
UK could attempt to talk Trump out of tariff war, Reeves tells MPs
Interest rates drop ‘looks virtually certain’, analyst says
11:14 , Andy Gregory
Inflation falling below the Bank of England’s 2 per cent target level will encourage policymakers to continue easing interest rates, experts believe.
Andrew Goodwin, chief UK economist for Oxford Economics, said the outcome of the Bank’s Monetary Policy Committee meeting “looks virtually certain”, although some members could still opt for rates to be kept the same.
MPC members Huw Pill and Megan Greene are the most “unpredictable”, he said, with lingering concerns over services sector inflation and wage growth.
Full report: Bank of England poised to cut UK interest rates for second time this year
11:00 , Andy Gregory
UK borrowing costs are set to be cut for the second time this year, despite tax changes and a Donald Trump victory in the US casting uncertainty over the future path of interest rates.
Most economists think policymakers at the Bank of England will opt to reduce interest rates to 4.75% on Thursday.
Rates currently sit at 5 per cent after being cut by 0.25 points in August, the first reduction since 2020, then kept the same in September.
Read the full report here:
Bank of England poised to cut UK interest rates for second time this year
UK house prices surpass 2022 to hit record high
10:32 , Andy Gregory
Average UK house price a record high last month, with the cost of a home averaging just below £294,000, according to an index.
House prices increased by 0.2 per cent in October, marking the fourth monthly increase in a row, Halifax reported.
The average house price was £293,999, surpassing a previous peak in June 2022.
Property values increased by 3.9 pe rcent annually, slowing from a 4.6 per cent increase in September.
Pound slightly up ahead of interest rates announcement
10:03 , Andy Gregory
The pound was up slightly against the US dollar as of 10am, sitting at $1.2913 compared to $1.2890 at the previous close.
The euro at 10am was £0.8325 compared to £0.8325 at the previous close.
Norway’s central bank keeps interest rates at 16-year high
09:49 , Andy Gregory
Sweden’s central bank has cut its key interest rate today to 2.75 per cent from 3.25 per cent, as expected, while the Norwegian central bank held its policy interest rate unchanged at a 16-year high of 4.5 per cent.
Comment | How a Trump presidency could blow the British economy out of the water
09:46 , Andy Gregory
What will Keir Starmer be most worried about as he contemplates a second Donald Trump presidency? Until recently, Ukraine has been top of the UK government’s list, given the prospect Trump might unilaterally try to end the war – and not necessarily on terms favourable to Ukraine.
However, it is now dawning on UK ministers that Trump’s threat to impose 60 per cent tariffs on imports from China and 10 or 20 per cent on those from everywhere else including the UK, could inflict huge damage on the British economy. There are growing fears the UK’s trade with its biggest single export market in the US will be hit hard.
Read the full analysis by our columnist Andrew Grice here:
How a Trump presidency could blow our own economy out of the water
Trump win could cause “full-blown recession” in Europe, ING says
09:14 , Albert Toth
Analysis from ING has warned that Trump’s victory in the US could make “Europe’s worst economic nightmare comes true” as the president-elect looks to introduce a 10 per cent tariff on all non-US goods.
Researchers from the Dutch investment bank wrote: “A looming new trade war could push the eurozone economy from sluggish growth into a full-blown recession. The already struggling German economy, which heavily relies on trade with the US, would be particularly hard hit by tariffs on European automotives.
“Additionally, uncertainty about Trump’s stance on Ukraine and NATO could undermine the recently stabilised economic confidence indicators across the eurozone. Even though tariffs might not impact Europe until late 2025, the renewed uncertainty and trade war fears could drive the eurozone economy into recession at the turn of the year.”
Cost of living fears rise as pubs and supermarkets warn of Budget “double whammy”
08:58 , Albert Toth
Several British companies have warned of rising costs to consumers in the wake of Labour’s Budget.
Business leaders from Marks and Spencer, Wetherspoon and Persimmon all join a growing list of bosses who have expressed concern.
Marks and Spencer’s Stuart Machin said the retailer is expecting to take a £60 million hit due to the “double whammy” of rises to employer national insurance contributions and the national living wage.
Read more:
Cost of living fears rise as pubs and supermarkets warn of Budget “double whammy”
Average UK house price hit record high in October
08:44 , Albert Toth
House prices increased by 0.2 per cent in October, the fourth monthly increase in a row, Halifax has reported. The average house price was £293,999, surpassing a previous peak set in June 2022 (£293,507).
Property values increased by 3.9 per cent annually, slowing from a 4.6 per cent increase in September.
Amanda Bryden, head of mortgages at Halifax, said: “That house prices have reached these heights again in the current economic climate may come as a surprise to many, but perhaps more noteworthy is that they didn’t fall very far in the first place.
“Despite the headwind of higher interest rates, house prices have mostly levelled off over the past two and a half years, recording a 0.2 per cent increase overall.
“That’s a significant slowdown compared to the 21 per cent rise we saw in the equivalent period from January 2020 to the summer of 2022.”
Bank of England expected to cut interest rates today
08:40 , Albert Toth
Interest rates are widely expected to be cut today, with most experts predicting a drop from 5 per cent to 4.75 per cent. The Bank of England decision will announced at midday UK time.
The change will make the cost of borrowing cheaper in the UK, but also lessens returns on savings.
Interest rates are a key tool that the Bank uses to control the level of inflation. After the drop from 5.25 per cent to 5 per cent in August, inflation also dropped unexpectedly.
In September, the inflation rate (CPI) reached 1.7 per cent, dropping below the Bank’s 2 per cent target in S for the first time in more than three years.
This is understood to be a driving factor behind today’s decision. However, tax changes announced at Labour’s Budget in October and Donald Trump’s victory in the US have caused some market uncertainty.
Inflation fell below the Bank of England’s 2 per cent target in September for the first time in three years
Wednesday 6 November 2024 22:14 , Barney Davis
Experts said inflation falling below the Bank’s 2 per cent target level will encourage policymakers to continue easing interest rates, releasing some more pressure on borrowers and mortgage holders across the UK.
Andrew Goodwin, chief UK economist for Oxford Economics, said the outcome of the Bank’s Monetary Policy Committee (MPC) meeting “looks virtually certain”, although some members could still opt for rates to be kept the same.
MPC members Huw Pill and Megan Greene are the most “unpredictable”, he said, with lingering concerns over services sector inflation and wage growth.
The Monetary Policy Committee meets in the week after Chancellor Rachel Reeves announced almost £70 billion of extra annual spending, funded by business-focused tax hikes and additional borrowing.
The Office for Budget Responsibility (OBR) said the sharp increase in spending will contribute to higher inflation, although it will also help drive stronger economic growth.
Inflation is forecast to average 2.5 per cent this year and 2.6 per cent next year before coming down, assuming “the Bank of England responds” to help bring it to the target rate, the OBR said.
Economists are rolling back predictions for a rapid succession of rate cuts over the next year
Wednesday 6 November 2024 22:12 , Barney Davis
James Smith, developed market economist for ING, said: “The Budget won’t change the Bank’s decision to cut rates again this week.
“But it does question our long-held view that rate cuts will speed up from now on.
“The risk is that this happens later, and the Bank decides to keep rates on hold again in December.
“A cut at the final meeting of the year looks fairly 50:50, and a lot will depend on the two inflation reports we get between now and Christmas.”
