Bank of England cuts interest rates as it warns food costs could push inflation to 4% | Interest rates

The Bank of the UK warned that rising food prices could increase inflation to 4% because it increased concerns about the power of the UK economy and voted for the fifth decline in interest rates in a year.

In one of its closest decisions since its independence more than 25 years ago, the Bank’s Monetary Policy Committee (MPC) voted 5-4 votes to reduce the key base ratio to a quarter point to 4%.

A deduction in the financial markets was expected by taking the borrowing costs to the lowest level since March 2023. However, for the first time in history before reaching its decision, the decision was a close call with the Ratio Determination Panel.

Andrew Bailey, the governor of the bank, said: “Today we have reduced interest rates, but this was a fine -balanced decision. Interest rates are still on a downward road, but the future rate cuts will have to be gradually and carefully.”

Chancellor Rachel Reeves, as the Labor Party is under increasing pressure on the economic administration of the Labor Party, and the increase in speculation on tax increases in the autumn budget and deduction will alleviate some of the financial pressure on borrowers.

In August last year, ministers have tried to demand credit for bank cutting rates since the first decline in borrowing costs from a 5.25%summit. The Bank, which helps to alleviate some of the financial burden on Mortgage borrowers, reduced the latest borrowing costs in May.

However, critics say Reeves’ tax increases in the first autumn budget worsen the economic performance of England, and Donald Trump contributed to pressure on businesses from the increasing uncertainty from the global trade war.

Threadneedle Street, with the weakness of the economy and unemployment increased, with the increase in the price of food price of inflationist pressures that have increased from a sharp increase in food price, he said. Trade uncertainty was also a heavy weight on the appearance.

He said that inflation will reach 4% by September by publishing update forecasts – twice the official target set by the government. It is estimated that the title ratio will fall below 3% until the summer of 2026 and will return to the target by 2027.

MPC warned that food price inflation contributes to the ratio directed by climate -induced shocks that affect global price for several important components, especially chocolate and coffee.

However, at the same time, the UK supermarkets also put the grocery prices in response to the “material” increases in employment costs and both of them in response to new fees for recycling by the government.

“In addition to global agricultural commodity prices, domestic labor costs are currently an important driving force of food price inflation,” the Bank said.

Business leaders warned Reeves that the increase in £ 25 billion in the employer national insurance contributions (NICS) and an increase of 6.7% in the national life fee since April will force them to cut and take prices.

Official figures show that unemployment is higher in recent months and the economy has shrunk in April and May. Inflation has also increased more than expected and reached 3.6% in June.

Weak growth, but faced with a double -sided risk for the UK economy, which originated from inflationist pressures, the MPC decision, whose cutting rates were divided in favor, was swinged by the foreign economist field Taylor.

The independent MPC member, who has repeatedly supported deeper cuts in borrowing costs, firstly voted for a half -point reduction before joining a narrow majority that supports a quarter -point deduction, including Bailey.

Other four member interest rates, including Clare Lombardelli, one of the governors of the bank’s chief economist Huw Pill and his governors, who revealed tensions in the heart of Threadneedle Street, voted to change.

Inflation has declined significantly in the last two and a half years after Russia’s occupation of Ukraine in late 2022 after more than 11% summit. This progress allowed the bank to reduce rates. However, he said that ongoing inflationist prints can remove future ratio deductions from the track.

“MPC judges that the inverse risks around medium -term inflationist prints are slightly higher than May,” he said.