Bank of England’s latest decision on base rate

The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8 – 1 to reduce Bank Rate to 4.75% at its November meeting.

One member of the committee voted to maintain the base rate at 5%.

In setting out the context to the vote, the MPC said: ‘Based on the evolving evidence, a gradual approach to removing policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.’

Reacting to the news, Dr David Crosthwaite, Chief Economist at BCIS, said: ‘Given that inflation is now below the Bank of England’s 2% target, we have some good news – a 25 basis points cut to the base rate, the second cut this year.

‘Hopefully the reduction will offset some of the impacts of the tax raising budget last week and, with borrowing costs lower, that should encourage investment into construction and the wider economy.

‘However, the increase to employers National Insurance contributions announced in the Autumn Budget is likely to be inflationary when it kicks in next April and, with the base rate now at 4.75%, the expectation is that rates will remain higher for longer.

‘This is therefore likely to be the last cut this year as the Bank of England waits to assess any further inflationary impacts from the Budget and the US election result.’

Reflecting on the vote in the wake of the Autumn Budget, the MPC said: ‘The combined effects of the measures announced…are provisionally expected to boost the level of GDP by around ¾% at their peak in a year’s time, relative to the August projections. The Budget is provisionally expected to boost CPI inflation by just under ½ of a percentage point at the peak, reflecting both the indirect effects of the smaller margin of excess supply and direct impacts from the Budget measures.

‘There remains significant uncertainty around the outlook for the labour market. Data are difficult to interpret and wage growth has been more elevated than usual relationships would predict. 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.’

The MPC’s next vote will be published on Thursday 19 December 2024.

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