02 Aug 2024
The Bank of England has cut interest rates to 5% in the first drop since March 2020.
Rates were reduced by the Bank's Monetary Policy Committee (MPC) from 5.25% to 5% in a 'closely-run decision'. Commenting on the issue, Andrew Bailey, Governor of the Bank of England said that policymakers must ensure that inflation stays low and avoid cutting interest rates too quickly or by too much.
Meanwhile business groups, including the British Chambers of Commerce (BCC) and the Confederation of British Industry (CBI) have responded to the decision.
David Bharier, Head of Research at the BCC, said: '[The] decision by the Bank to cut the interest rate gives many smaller firms welcome breathing space and could trigger an increase in investment as borrowing costs decline.
'This cut, the first since 2020, became inevitable as inflation has settled at around 2% over recent months. Our economic forecast expected this cut, as well as a further reduction by December, bringing the interest rate to 4.75% by the end of the year.'
The CBI stated that the decision to cut interest rates 'was on a knife edge'. Alpesh Paleja, Interim Deputy Chief Economist at the CBI, commented: 'At best, there is only mixed evidence that inflation persistence has been defeated. While the labour market is loosening and wage growth slowly easing, the unexpected strength in services inflation remains a red flag.
'We still think that [the] meeting marks the start of a rate cutting cycle, but the pace of this is now more uncertain.'