The Bank of England has been urged to slash interest rates at a “further and faster” pace after dropping the prime rate to 4.75 per cent.
Threadneedle Street cut interest rates for a second time this year after inflation fell to 1.7 per cent in September.
The latest interest rate cut was announced earlier today, marking the second reduction in rates this year.
It is also the first time rates have been below five per cent since June 2023.
Most analysts had predicted the 0.25 percentage point reductionPAReacting to the announcement, Chancellor Rachel Reeves said: “Today’s interest rate cut will be welcome news for millions of families, but I am under no illusion about the scale of the challenge facing households after the previous Government’s mini-budget.
“This Government’s first Budget has set out how we are taking the long-term decisions to fix the foundations to deliver change by investing in the NHS and rebuilding Britain, while ensuring working people don’t face higher taxes in their payslips.”
While experts believe inflation falling below two per cent encouraged policymakers to ease interest rates, the decision comes a week after Reeves announced £70billion in spending in her maiden Budget.
The Office for Budget Responsibility (OBR) said the sharp increase in spending will contribute to higher inflation, although it will also help drive stronger economic growth.
However, the IEA’s Julian Jessop believes the Bank of England needs to go further in cutting interest rates.
Rachel Reeves
PAHe said: "The Bank of England was right to cut interest rates again today but should move further and faster.
“Rates are still higher than necessary to keep bearing down on inflation, especially when the Bank is continuing to tighten policy by running down its holdings of government bonds.
"Indeed, a majority of members of the IEA’s Shadow Monetary Policy Committee voted to cut rates by a half a point rather than a quarter.
“Inflation is now back close to target and expected to remain there, but the full effects of past increases in interest rates and the deceleration of money growth have yet to feed through.
"The additional uncertainty and market volatility triggered by the Budget and Trump’s victory had prompted some to speculate that the MPC might hold off today.
The Bank of England
PA“Delivering the rate cut that almost all had expected should therefore help to reassure households, businesses, and investors.
"The Bank has also endorsed the OBR view that the additional spending and borrowing in the Budget will provide a temporary boost to growth and inflation.
“This could slow the pace of rate cuts in future, though the Bank stuck to its guidance that rates will fall ‘gradually’ (perhaps a quarter point every three months, taking the Bank rate to 3.75 per cent by the end of next year).
"However, the Bank’s forecasts are based on assumptions about the path of market interest rates which already look too optimistic.
“The increases in taxes and other business costs in the Budget, compounded by the hit to confidence, should also limit any upsides to growth or inflation.
"The Bank acknowledged the uncertainties here, implying rates could still be cut more quickly. But there is a clear risk that the MPC is too slow to respond."
