Bank of England interest rate decision | Concern over cutting ‘too fast’

The Bank of England (BoE) has left UK interest rates unchanged at 5%, warning that cutting too fast or too much could negatively impact inflation.

Andrew Bailey, the Bank of England’s governor, says cooling inflation pressure means the BoE should be in a position to cut interest rates gradually over the coming months.

However, he said: “It’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much.”

The bank cut the interest rate to 5% in August, the first rate cut since 2020. 

The base rate is closely followed as it heavily influences the rates set by High Street banks and money lenders as well as impacting vehicle lease rentals.

The Bank had held rates at a 16-year high of 5.25% since August 2023, as it attempted to tackle rising prices across the UK.

Philip Nothard, insight director at Cox Automotive, said: “The Bank of England's decision to keep the base rate unchanged at 5%, following the inflation rate holding steady at 2.2%, brings a sense of stability to the UK automotive sector.

“While a second base rate reduction would certainly boost consumer confidence, especially as retailers face a potentially challenging period, the current balance of stable inflation and interest rates is welcomed.

“This consistency provides a foundation for cautious optimism as we approach the year-end, offering relief to consumers and businesses navigating uncertain market conditions.”

The Monetary Policy Committee (MPC), which uses interest rates as a tool to control inflation, says it wanted to make sure persistent inflationary pressures were squeezed out so that price rises remain at the 2% target level.

The latest inflation figures, released yesterday, show that inflation is currently slightly above the Bank's target at 2.2%.