The Bank of England on Thursday cut its benchmark interest rate by 25 points reflecting ‘continued progress’ in disinflation.

In a widely expected move, the BoE’s Monetary Policy Committee voted decisively by 8 to 1 to lower rates to 4.75%, having cut borrowing costs for the first time in four years in August before leaving them unchanged in September.

Catherine Mann was the lone dissenting voice on the MPC, preferring to maintain bank rate at 5.0%.

Looking ahead, the BoE said a ‘gradual’ approach to removing policy restraint remains appropriate, noting ‘significant uncertainty’ around the labour market and a range of future paths for inflation.

‘We need to ensure inflation stays low. So we will not cut interest rates too quickly or too much,’ the BoE said. ‘If things evolve as expected, it’s likely that interest rates will continue to fall gradually.’

The BoE’s decision comes in the wake of last week’s budget and the election of Donald Trump as US president, both of which are expected to put upward pressure on inflation.

The BoE said the budget was expected to boost the level of GDP by around 75 basis points at their peak in a year‘s time, relative to the August projections. The impact on inflation was put at by just under 50 basis points.

‘The impact of the budget announcements on inflation will depend on the degree to and speed with which these higher costs pass through into prices, profit margins, wages and employment,’ it said.

Following last week’s budget, the Office for Budget Responsibility estimated inflation will be 2.5% in 2024, 2.6% in 2025, 2.3% in 2026 and 2.1% in 2027.

Economic growth is expected to pick up to 2.0% in 2025 from 1.1% from 2024, according to the OBR. Growth of 1.8% is seen in 2026, before falling to 1.5% in 2027 and 2028.

The tax raising, spending boosting, and borrowing busting fiscal statement last week caused temporary alarm in financial markets with the yields on UK bonds spiking, and the pound falling.

Following today’s decision the pound traded at $1.2928, up compared with $1.2907 shortly before the decision. The yield on the long-dated 10-year UK bond was 4.61% compared to 4.57% before.

The blue chip FTSE 100 was 11 points lower compared with being 2 points to the good just before midday.

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