This follows its decision to cut rates in August, when the BoE’s monetary policy committee (MPC) also delivered the smallest possible cut of 0.25%.
This is like wading through mud. Consumer price inflation collapsed to 1.70% in September, comfortably below the BoE’s target rate of 2%.
Despite this, the MPC is still passing on rate cuts in a miserly fashion.
In my few, it should have taken a chance and cut rates at the start of the year, and brought them too closer to 4% by now.
Interest rate cuts on a blunt instrument anyway. The recent inflationary spike was caused by rocketing interest rates and post-pandemic supply chain shortages, and had nothing to do with interest rate levels.
All the MPC did was pile on the misery by sending borrowing costs soaring and making homeowners, consumers and businesses feel even poorer than they already did.
Still, let’s not quibble. Today’s cut is good news. Even if markets were about 85% certain it was going to happen anyway.
Mortgage lenders have been pushing up rates in recent weeks, now with luck they will start cutting them again.
Borrowers with variable-rate mortgages and base-rate trackers should see their monthly payments fall.
This offers them some respite from last week’s Budget tax onslaught, to reducing the impact of Labour’s £40billion of tax hikes.
Lower interest rates can stimulate economic activity, encourage investment, and reduce borrowing costs for businesses and consumers.
We need more of them.
There’s a danger that we’re going to get even fewer instead. And that’s partly down to Labour.
Last week, Reeves shamelessly fiddled the fiscal rules to justify borrowing another £32billion a year.
That has already sent gilt yields soaring towards 4.6%, as nervous bond market investors demand higher interest rates for lending to the UK.
Putting it simply, with all this extra spending and borrowing, they’re no longer 100% sure that we’re good for the money.
Worse, new incoming President Donald Trump is likely to fire up the US economy by slashing tax rates and red tape.
That’s likely to drive up inflation too, and make it harder for the US Federal Reserve to cut interest rates in future.
If it doesn’t cut, the BoE will get nervous too.
Before the Budget and US election, markets were expecting the MPC to cut rates at its next meeting on December 19. Not any longer. That’s a real blow.
Worryingly, markets expect inflation to start climbing next year, to an average of around 2.5%. That’s above the BoE’s target.
Savers will be disappointed by today’s cut, as they are likely to get less from variable rate easy access accounts, and fixed rate bonds.
However, today’s 4.75% base rate is still vastly superior than in the dark days after the financial crisis, when it fell to just 0.25%.
I’ve been urging savers to lock into longer-term fixed-rate savings bonds if they can, to take advantage of today’s higher rates for as long as three to five years into the future.
That still applies, although rates are still likely to stay higher for longer than we expected just a couple of weeks ago.
The economy is expected to grow by 2% this year, next year, boosted by all the money Reeves is planning to borrow and spend.
Thereafter, growth will slow to a snails pace, and if Donald Trump slaps terrace on UK exports, it might see together.
We need more rate cuts. Let’s hope the bank delivers a Christmas surprise, and cut them to 4.5% by the end of the year.
