Bank drops interest rates to three-year low of 3.75%

Interest rates have been reduced to their lowest in nearly three years as Budget measures are set to push down on inflation, although the Bank of England cautioned that further cuts will be a “closer call”.

- ANNA WISE

The Bank’s Monetary Policy Committee (MPC) voted to reduce rates from 4 per cent to 3.75 per cent.

Governor Andrew Bailey said the UK has “passed the recent peak in inflation and it has continued to fall”, allowing the MPC to cut borrowing costs for the fourth time this year.

“We still think rates are on a gradual path downward,” he added. “But with every cut we make, how much further we go becomes a closer call.”

Economists think the pace of interest rate cuts will slow next year as the Bank gets closer to what it deems a “neutral” rate and inflation nears its 2 per cent target level.

The latest reduction takes the bank’s base interest rate to its lowest level since early 2023. The nine-person committee voted five to four for a cut, with Mr Bailey among those preferring to lower rates at the Bank’s final meeting of the year.