UK Base Interest Rate Cut by 0.25%P to 5% Annually... First Reduction Since the Pandemic (Comprehensive)

President Bailey: "Will Not Lower Quickly or Significantly"

The Bank of England (BOE), the central bank of the United Kingdom, lowered its base interest rate by 0.25 percentage points to 5.00% on the 1st (local time).

At the BOE Monetary Policy Committee (MPC) meeting held that day, 5 out of 9 members voted in favor of a 0.25 percentage point rate cut.

This is the first time in over four years that the BOE has cut its base rate since lowering it to a record low of 0.10% in March 2020 at the start of the COVID-19 pandemic. To curb soaring inflation, the BOE raised rates 14 consecutive times until August last year and then held rates steady for seven consecutive times until June this year. The UK base rate had been at its highest level in 16 years since April 2008, when it was 5.25%.

Andrew Bailey, Governor of the BOE, said, "Inflationary pressures have sufficiently eased, allowing us to cut rates today," adding, "We will be cautious not to cut rates too quickly or too much." The UK Consumer Price Index (CPI) inflation rate matched the BOE's official target of 2% annually for two consecutive months in May and June.

Following the rate announcement, Chancellor of the Exchequer Rachel Reeves stated, "The rate cut is welcome news, but millions of households still face high mortgage rates," and added, "The government is making difficult decisions to repair the foundations of our economy after years of low growth."

According to the Financial Times (FT), the pound sterling traded at $1.276, down 0.8%, marking its lowest level in four weeks.

The European Central Bank (ECB) cut its base rate by 0.25 percentage points to 4.25% in June and held it steady last month. The U.S. Federal Reserve (Fed) also kept its base rate unchanged at the Federal Open Market Committee (FOMC) meeting that ended on the 31st of last month, hinting at the possibility of starting rate cuts at the September meeting.