The Bank of England has lowered interest rates for the first time in four years, reducing them by 25-basis points and taking them down from a 16-year high.
The British central bank voted five to four in favor of lowering the benchmark interest rate by a quarter of a percentage point to 5%.
The interest rate cut comes as a bit of a surprise. While economists had widely anticipated the move, financial markets had priced in only a 60% chance of an interest rate reduction.
Before today (August 1), the Bank of England had held its key lending rate at 5.25% for the better part of a year.
The rate reduction is the first time that interest rates have been lowered since March 2020, which was the beginning of the Covid-19 pandemic.
The decision to lower interest rates comes as data showed that inflation across the United Kingdom (U.K.) returned to the Bank of England’s 2% annualized target in May of this year.
Inflation in the U.K. peaked at a 41-year high of 11.1% in October 2022 and has steadily fallen since then.
Looking ahead, the Bank of England said it will continue to closely monitor consumer prices, as well as services prices, wage growth, and the labour market.
Along with the interest rate cut, the British central bank issued a new forecast for the U.K. economy, saying it now expects 1.25% growth this year, up from a previous forecast of 0.5%.
