The decision to lower the base rate had been widely expected by the markets, and welcomed, with many noting that it will boost consumer confidence.
At the meeting, the MPC voted by a majority of 5:4 to cut the base rate by 0.25%, as opposed to maintaining it at 4.25%.
Explaining its decision, the MPC said there has been “substantial disinflation over the past two-and-a-half years, following previous external shocks, supported by the restrictive stance of monetary policy”.
“That progress has allowed for reductions in bank rate over the past year. The committee remains focused on squeezing out any existing or emerging persistent inflationary pressures, to return inflation sustainably to its 2% target in the medium term,” it said.
The report continued on to say that inflation had risen due to developments in energy, food and administered prices, and pay growth was “elevated” but had fallen more recently.
Five benefits of buying property through a limited company
Sponsored by BM Solutions
The MPC said inflation is forecast to rise to a peak of 4% in September and then fall back to 2%.
It said it “remains alert to the risk that this temporary increase in inflation could put additional upwards pressure on the wage and price-setting process”.
The MPC said a “gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate”.
“The restrictiveness of monetary policy has fallen as base rate has been reduced. The timing and pace of future reductions in the restrictiveness of policy will depend on the extent to which underlying disinflationary pressures continue to ease. Monetary policy is not on a pre-set path, and the committee will remain responsive to the accumulation of evidence,” it said.
Since August 2024, around 0.75% has been shaved from the base rate, but the MPC kept it stable in June.
Nicholas Mendes, mortgage technical manager at John Charcol, said: “This was the widely expected move – and it keeps the Bank of England on that ‘gradual and careful’ path they’ve been talking about for a while. The labour market is softening, businesses are pulling back on hiring, and the economy shrank in April and May. All signs point to a cooling economy, but not one that’s falling off a cliff.
“A quarter-point cut won’t move the mortgage market dramatically, but it does keep the downward momentum going. Lenders are likely to trim rates further to stay competitive, especially with some already pricing in another cut before the end of the year.”
He said the decision may give lenders “more confidence to adjust pricing, but how far they go will depend on how stable the data looks from here”.
“With unemployment now at a four-year high and business confidence slipping, the pressure to support growth is clearly building.
“Today’s move fits the broader narrative of a slow unwind, with expectations already forming around a second cut before the end of the year,” he added.
