The Bank of England (BoE), central bank of the United Kingdom, has cut its interest rates on Thursday by a quarter-point to 5%. This brings down the rate from its 16-year high and represents the first cut since 2020.
During its June meeting, BoE opted against cutting the rates, which have been steady for almost a year, with a 7-2 vote. This time around, the cut was pushed through with a narrow vote of 5-4, signaling a divide among the officials about whether the inflation levels have dropped to a level that warrants such intervention.
The decision was somewhat unexpected, considering that the chances of rate cuts were projected at around 60% by economists, while BoE officials gave little insight into their intentions ahead of the meeting.
Governor Andrew Bailey said in a statement that the officials are taking a careful approach in order to make sure inflation levels remain low.
“We need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much,” Bailey stated.
The inflation in the UK remained at 2%, BoE’s target level, for the past two months and is lower than in the United States and Euro Zone. BoE expects the inflation to surge to 2.75% in the final quarter of the year on the back of rising energy prices but predicts a return to 2% and below in 2026.