The Bank of England (BoE) has confirmed a 0.25% cut to interest rates with the new base rate now set at 4.75%.

At its latest meeting, the central bank’s Monetary Policy Committee (MPC) voted by a majority of eight to one to reduce the base rate by 0.25%. One member voted to maintain it at 5%.

It comes as the Office for National Statistics announced last month that CPI inflation had fallen below the BoE’s 2% target in September, to 1.7%.

The MPC said there had been “continued progress in disinflation” but warned that remaining domestic inflationary pressures are “resolving more slowly”, with the BoE expecting inflation to creep back up towards 2.5% by the end of the year.

The latest rate cut, which had been expected by economic analysts, marks the second cut to interest rates this year after they came down from 5.25% to 5% in August. This was the first reduction in the base rate since the onset of the COVID pandemic in March 2020.

Prior to that, the BoE had increased its base rate from a record low of 0.1% during the pandemic at 14 successive MPC meetings between December 2021 and August 2023, which took interest rates to their recent peak of 5.25%.

Head of mortgages and protection at Just Mortgages, Ben Allkins, said that market forecasts had been “optimistic” about the prospects of a cut to the base rate following last week’s Budget.

“It has long been on the cards and is hugely welcome as potential buyers snap out of their pre-Budget holding patterns and get their moving plans back on track,” Allkins said.

“The hope is that positive movement on the base rate will rub off on swap rates and will give lenders the platform to review their pricing. Ultimately though, lenders do need to lend and today’s decision will certainly influence their decision making as they look ahead to their end-of-year lending targets.”

Head of advice at abrdn Financial Planning, David Murray, added that the drop to 4.75% would be “music to the ears of borrowers across the country”.

“The decision will be a welcome relief for those that are approaching a remortgage or looking to buy their first home, and those who want to take on additional borrowing in the coming months,” Murray said.

“The drawback of this drop will be a potential drop in cash savings rates, which have been higher in recent years. Those who have banked on these higher interest rates to make the most of their savings, might need to consider if other investment options will help their savings grow in a lower interest rate environment.”

There is one more base rate decision before the end of the year with the BoE to make its next announcement on 19 December.

---