Bank of England cuts interest rates to lowest level since February 2023

The Bank of England has cut interest rates to their lowest level since February 2023, as policymakers judged that inflationary pressures are continuing to ease.

The Bank’s Monetary Policy Committee (MPC) voted by a narrow margin of 5–4 to reduce the base rate by 0.25 percentage points, taking it from 4% to 3.75%. Four members voted to keep rates unchanged.

The decision comes with inflation standing at 3.2%, still above the Bank’s 2% target but lower than at the previous meeting and well down from a peak of more than 10% three years ago. New figures published yesterday showed inflation slowing by more than expected, easing pressure on policymakers to keep rates high.

In its statement, the Bank said inflation is now expected to return towards the 2% target more quickly in the near term. It pointed to subdued economic growth, easing pay growth and a cooling labour market as signs that price pressures are continuing to fade.

“Reflecting restrictive monetary policy, and consistent with evidence of subdued economic growth and building slack in the labour market, pay growth and services price inflation have continued to ease,” the MPC said.

Higher interest rates are typically used to curb inflation by reducing spending, but the committee said the risk of inflation remaining persistently high has become “somewhat less pronounced” since its last meeting. At the same time, it warned that weaker demand could pose risks to inflation in the medium term.

Governor Andrew Bailey said the Bank remains focused on ensuring inflation returns fully to target and stays there.

“We have cut Bank Rate by 0.25% to 3.75%. Since August 2024, we have cut rates six times,” he said. “Inflation has fallen a long way from its peak, and while we think Bank Rate is likely to fall gradually further in future, that will depend on whether pay growth and services inflation continue to ease.”

The Bank has now reduced rates by a total of 1.5 percentage points since August 2024. While policymakers said interest rates are likely to continue on a gradual downward path, they cautioned that future decisions would be “a closer call” and dependent on incoming economic data.

The MPC meets eight times a year to set interest rates with the aim of keeping inflation low and stable. Its next meeting to discuss interest rates is scheduled for 5 February 2026.