UK interest rates cut to 3.75% as Bank signals inflation nearing target

"Members of the Bank's nine-strong monetary policy committee (MPC) voted narrowly, by five votes to four, to reduce the base rate by a quarter of a percentage point to 3.75 per cent, down from 4 per cent. The decision delivers immediate relief to mortgage holders and businesses with variable-rate loans. The Bank said inflation was now expected to fall close to target within six months, helped in part by measures announced in last month's budget that will ease household costs."

"Officials estimate that government decisions, including removing some levies from energy bills, extending the fuel duty freeze and cancelling a planned rail fare rise, could reduce inflation by as much as 0.5 percentage points and bring forward the disinflation process by around six months. Andrew Bailey, governor of the Bank of England, said the peak in inflation had passed but warned that future rate cuts were not guaranteed."

"The rate cut follows a run of weaker economic data. Inflation fell to 3.2 per cent in November, down from 3.6 per cent in October, while unemployment has risen to 5.1 per cent, its highest level in nearly six years. Private sector wage growth has also cooled, easing concerns about persistent inflationary pressure. The economy contracted by 0.1 per cent in October."

The Bank of England reduced the base interest rate by 0.25 percentage points to 3.75% in a 5–4 MPC vote, easing costs for mortgage holders and variable-rate borrowers. Inflation is now expected to reach the 2% target by spring, with government measures—such as removing some energy levies, extending the fuel duty freeze and cancelling a planned rail fare rise—estimated to lower inflation by up to 0.5 percentage points and accelerate disinflation by about six months. Recent data show inflation falling to 3.2% in November, unemployment at 5.1%, cooled private wage growth and a 0.1% GDP contraction in October.

Read at Business Matters