UK interest rates cut to 4% in tight decision

Since being forced to vote twice to arrive a decision, the Bank of England has barely supported an interest rate cut in a knife-edge move. The cost of borrowing has been reduced from 4. 2 percent to 4. 0. In the fifth cut since last August, the government has dropped 25% to 4%. However, the Bank's historic second vote by policymakers suggests that further interest rate cuts will be more balanced, despite fears that inflation will rise as companies raise food prices to compensate for higher labor costs. The decrease in interest rates could save some homeowners' monthly mortgage payments, but it could also mean lower returns for savers.

According to the Bank'sMonetary Policy Report, inflation is forecast to hit 4% in September. That's twice the Bank's target rate and above the 3. In its May study, it predicted an 8 percent rate. The decision to cut interest rates was finely balanced, according to Andrew Bailey, governor of the Bank of England. Interest rates are still on a downward trend, he said.

Any future rate cuts must be made gradually and precisely.

Businesses informed the Bank that material increases in National Insurance Contributions and the national living wage since April have risen to 2% to food prices. According to the Bank, global adverse weather conditions had also raised the cost of products such as beef, coffee beans, and cocoa. However, businesses told the Bank that labour costs

will continue to rise food prices in the second half of the year,

and that new packaging legislation will go into place.

Businesses said that in order to reduce costs, they were going to fire employees. They also reported that customers were trading down by purchasing own-label products as opposed to branded ones. Customers are increasingly purchasing cheaper cuts of meat and buying food staples in larger value packs. Interest rates are now at their lowest level since March 2023 at 4%. This could benefit some mortgage-holders and borrowers, but savers are expected to see lower returns. People with tracker mortgages, which are loans that track the Bank's base rate, will see a dramatic decrease in monthly repayments. There about 600,000 people who have one. According to financial services firm Moneyfacts, the latest decrease in rates means repayments on an average variable rate mortgage of £250,000 over 25 years will decrease by £40 per month.

'We are still a little bit anxious about the future'

However, there are many homeowners who are having to remortgage this year at higher rates than they did several years ago. Adam Christie has just had to re-set his mortgage rate, going from a five-year fixed term to a 1. With a rate of 3. 33 percent, the 8% interest rate increased to a two-year term. 8%.

It was a major jump, but not as much as we were worried about,

he tells the BBC. Christie had been planning for a £200-per-month increase, but instead his repayments have increased by around £100. Although he praises this as the best of a bad situation, he notes that there is also uncertainty about the future.

We're still a little worried about the future and what it could hold. They might go up again. But I suppose only time will tell,

he says. The rate cut, according to Chancellor Rachel Reeves, was welcome news and

help bring down the cost of mortgages and loans for families and businesses. However, shadow chancellor Mel Stride said that interest rates

should be falling fasternow, adding:Rates are only starting to fall now to help the poor economy that Rachel Reeves has created. Daisy Cooper, a Liberal Democrat Treasury spokesperson, said the layoff "would have happened months earlier if the government wasn't being a roadblock to growth. The Monetary Policy Committee of the Bank was split on the decision to cut rates. Four members wanted to cut rates, four others wanted to hold, and one, Alan Taylor, wanted a steeper cut in borrowing rates. The Bank has now predicted that GDP figures for the April-to-June quarter, which are set to be announced next week, will show a dramatic decline to just 0. 1% growth. However, the government's trade agreement with the United States will continue to raise exports and the economy later this year, which will also help boost exports. Get all the headlines you need to start the day with our flagship newsletter. Sign up here.