Bank of England cuts interest rates for the first time in more than four years

The Bank of England has cut interest rates to 5% - the first cut since March 2020.

The cut comes after they were held at a 16-year high of 5.25% for seven consecutive months to help cool inflation.

Today’s decision was so close that economists couldn’t decide which way the BOE would go despite inflation hitting the target rate of 2% in May and June.

The decision by the Monetary Policy Committee is confirmation that the UK economy has turned a corner. And will be welcome news for the 700,000 homeowners on fixed-rate mortgage deals due to end in the second half of this year.

Several banks, including NatWest, Halifax, and Virgin Money, announced cuts to their mortgage rates ahead of today’s decision.

NatWest, the UK’s second biggest mortgage lender, cut the cost of their mortgage deals by up to 15%. While Virgin slashed theirs by 31% and also launched a number of exclusive deals for those looking to remortgage.

Halifax will cut its rates today by up to 33%.

What is the Bank of England interest rate?

The Bank of England interest rate, also known as the bank rate or base rate, is the rate at which the Bank of England lends money to commercial banks. This rate is a benchmark for other interest rates in the economy, such as mortgages, loans, and savings accounts.

The Bank of England, the central bank of the United Kingdom, sets the bank rate eight times a year. The decision is made by the Monetary Policy Committee (MPC), which has nine members, including Andrew Bailey, the current governor of the Bank of England.

How do Bank of England interest rates affect me?

Bank of England interest rates play a crucial role in shaping the country's economy. When the bank rate is low, it encourages borrowing and spending, which can stimulate economic growth. But when the rate is high, it discourages borrowing and encourages saving, which can help control inflation.

Here are some ways that interest rates could affect you:

• Mortgage rates: When the bank rate is low, mortgage rates tend to follow suit, making it cheaper for you to borrow money to buy a home. This can lead to increased demand in the housing market.
• Savings: High interest rates are good news for savers because they’ll earn a higher return on their account balances.
• Credit cards and loans: Interest rates also make a difference to how much is charged on credit cards, bank loans, and car loans. Lenders put up their rates if they expect interest rates to increase or decrease as interest rates fall.

Will interest rates continue to fall?

The Bank of England looks at a number of different financial measures when it comes to deciding whether to increase, decrease, or hold interest rates, not just inflation.

Currently, the interest rate is 5% - a fall from a 16-year high of 5.25%. It has been much higher in the past though, with interest rates hitting 17% in November 1979.

The BOE has been hesitant about dropping interest rates, choosing to hold it in May despite inflation hitting its 2% target – the lowest rate it has been in almost three years.

If inflation continues to hold steady, economists believe interest rates could fall by another 0.25% by the end of the year. And the International Monetary Fund (IMF) has indicated that they could fall to 3.5% by the end of 2025.