The long-awaited cut to the standard base rate has happened. The Bank of England’s Monetary Policy Committee (MPC) met on the first day of August to do what has not been done since March 2020, they cut the rate. The minimal rate cut of 0.25% has moved the base rate down to 5.0% from the 5.25% that has been working to tame inflation since August 2023. The last two meetings, in May and June, without a scheduled meeting in July, resulted in two members voting for the rate cut. The August meeting barely had the majority vote of 5-4 to move the rate downward, but it was enough. 

The minimal margin between those that wanted a rate cut and those that did not reveals there is the opinion the economy is still in need of a close watch to keep it on the path to recovery from double digit inflation. 

Getting to the 16-year high of 5.25% was a slow rise to work against inflation. The base rate had reached almost zero at 0.1% in March 2020, which was the last time a rate cut had occurred before the recent one. The COVID global pandemic had made it necessary to lower the rate to an historic level to keep a spark in the economy. In December 2021, the MPC increased the rate to 0.25% and they voted for a rate hike at each consecutive meeting until August of last year.

In September 2023, the MPC voted to keep the rate steady, and it was relief as it was thought it might not be the peak rate to rein in the inflation rate and would have needed to climb higher.

So, now what happens that the rate has been cut? 

Many experts will begin to determine if perhaps another rate cut could occur this year. There will be two more inflation reports released before the next MPC meeting in September. If those are favorable, then the discussion should become more optimistic about a rate cut before the end of the year.

Lenders have already cut their rates to reflect a decision by the MPC to cut rates. The expectation was high for the committee to have a majority vote in either August or September and rates began to drop weeks ago. This is why on the same day as the vote to cut the Bank’s base rate there were already lower interest rates available, and some mortgage offers are below the 5.0% base rate level already.

Remortgage offers are not as low, at least not yet, but lenders have been lowering remortgage offers as well. There are definitely lower rates from lenders than what were available only weeks ago.

Experts speaking on the new rate and the MPC’s decision are voicing a need for patience for the next rate cut.

The MPC remarked, “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.”

There is usually much to celebrate in a rate cut after fighting inflation that had once reached double digits, as there are usually lower interest rates to follow from lenders. While that has already occurred, there is still much to celebrate in the decision even if another one does not occur until the end of the year or early next year for interest rates are more affordable and inflation has fallen, and relief is slowly trickling down to consumers.