The Bank of England (BoE) lowered interest rates from a 16-year peak following a close vote by policymakers who disagreed on whether inflation pressures had decreased enough.
Governor Andrew Bailey, who led the 5-4 decision to lower rates by a quarter-point to 5%, said the BoE’s Monetary Policy Committee would move cautiously going forward.
“We need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much,” Andrew Bailey said in a statement alongside the decision.
The decision was expected by economists surveyed by Reuters, but financial markets had only priced in a little more than 60% chance of a cut.
The longest period that rates have been held steady during the height of a Bank of England tightening cycle since 2001 has been nearly a full year. This is also the first-rate reduction since March 2020, when the COVID-19 pandemic first began.
The Bank of England voted 7–2 in June 2024 to hold rates, and the most recent meeting’s minutes revealed that the decision to lower rates had been “finely balanced” for certain members, repeating language from earlier votes in which rates were left unchanged.
Governor Andrew Bailey and Deputy Governors Sarah Breeden and Clare Lombardelli were the only policymakers who did not alter their vote during this meeting.
None of them had discussed monetary policy in public since the BoE’s June 2024 meeting. Speaking engagements had been restricted by the July 4 election campaign that saw the Labour Party win a sizable majority.
Policymakers were briefed on the government’s announcements regarding public sector pay and fiscal policy, according to the BoE, but their implications would not be factored into the BoE’s forecasts until November 2024.
British consumer price inflation dropped from a 41-year high of 11% in October 2022 to the BoE’s target of 2% in May and remained there in June.
This means that British inflation is lower than that of the United States, where the Federal Reserve kept interest rates unchanged but hinted at a September cut, and the eurozone, where the European Central Bank cut rates in June.