Bank of England cuts interest rates by 0.25%

The Bank of England’s Monetary Policy Committee has voted to reduce interest rates to 5.25% this morning. The second rate drop in three months, today’s vote was in response to growing evidence of an economic downturn, combined with the increasing risk of inflation in the coming months as global financial markets face further uncertainty and borrowing conditions for consumers and businesses tighten. Higher energy and food prices, along with increased import costs caused by the falling value of the sterling are expected to raise inflation ‘quite sharply’ in the coming months. In order to balance this, the committee judged that ‘a reduction in Bank Rate of 0.25 percentage points to 5.25% was necessary to meet the 2% target for CPI inflation in the medium term’.

Today’s decision should move to buoy consumer confidence, and will be welcome news for homeowners with mortgages linked directly to the Base Rate.

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