"The Bank of England is making it clear to everyone this will not be a speedy journey on the way back down as it does not want to cut too quickly or by too much and risk a fresh inflationary spiral."
- Lindsay James, investment strategist at Quilter Investors
The Bank of England's Monetary Policy Committee has voted 5-4 to reduce Bank Rate to 5% - the first reduction since the early days of the Covid-19 pandemic in March 2020.
Four members preferred to maintain Bank Rate at 5.25%.
This month marks a full year since the Bank of England base rate rose to a 16-year high of 5.25%.
The MPC noted that twelve-month CPI inflation was at its 2% target in both May and June and the Committee expects the fall in headline inflation to "continue to feed through to weaker pay and price-setting dynamics".
As a result, the MPC said "it is now appropriate to reduce slightly the degree of policy restrictiveness".
It added: "The impact from past external shocks has abated and there has been some progress in moderating risks of persistence in inflation. Although GDP has been stronger than expected, the restrictive stance of monetary policy continues to weigh on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures."
Lindsay James, investment strategist at Quilter Investors, commented: “The Bank of England has finally spotted its opportunity to cut interest rates and has enacted its first reduction since the onset of the pandemic today. This will bring a huge collective sigh of relief to consumers and businesses up and down the country after interest rates reached the highest level in 16 years.
“With the market having been on the fence ahead of the announcement, with a 66% chance of a quarter-point cut, in the event the decision by the MPC was indeed a very close thing with a 5-4 majority decision. The Bank of England is making it clear to everyone this will not be a speedy journey on the way back down as it does not want to cut too quickly or by too much and risk a fresh inflationary spiral."
Paresh Raja, CEO of Market Financial Solutions, said: “The base rate has finally been cut, easing the barriers that have constrained the UK property market amid two years of high inflation and borrowing costs. I expect to see increased market activity in the coming weeks as a result.
“In recent months, we’ve seen a growing sense of optimism. With property prices and the volume of homes coming onto the market on the rise, today’s decision will likely encourage investors who have been holding back to re-engage. Despite the rate cut, however, borrowing costs remain extremely high, so flexibility for borrowers and brokers remains essential."
John Phillips, CEO of Just Mortgages and Spicerhaart, added: “At long last, the Bank of England has finally made the right decision and cut the base rate. The reality is this needed to happen, not just to breathe some life into the economy, but to help take some of the pressure off borrowers – particularly those on a tracker or on SVR.
“While we may not see lenders react instantly to today’s news – as many have already priced in a cut and made reductions accordingly – it’s likely to be the starting pistol for increased competition amongst lenders. All have their own targets to hit and need to lend to make money, so it’s only right to expect greater activity as they look to increase volumes and market share.
“Today’s news will likely be the impetus for many potential borrowers or movers to return to the market and get their plans back on track. If there’s ever been a time for brokers to be proactive and present in their local community, this is certainly it. As potential clients look to navigate a changing market, that whole of market access offered by a broker is hugely valuable. It’s our job to remind borrowers of this.”
