
Bank of England issues inflation warning but cuts interest rate to 4%
In a tight decision that saw members of the rate-setting committee vote twice to break a deadlock, the Bank cut interest rates to the lowest level in more than two-and-a-half years. Households on a variable mortgage of about £140,000 will save about £30 a month.
Andrew Bailey, governor of the Bank of England, said: "We've cut interest rates today, but it was a finely balanced decision. Interest rates are still on a downward path, but any future cuts will need to be made gradually and carefully."
The Monetary Policy Committee (MPC), the nine-member panel that sets the base interest rate, voted in favour of lowering borrowing costs by 0.25 percentage points.
However, rate-setters failed to reach a unanimous decision, with 4 members of the committee voting to keep rates on hold and another four voting for a 0.25 percentage point cut.
Alan Taylor, an external member of the committee, initially called for a larger 0.5 percentage point cut but after a second vote reduced that to 0.25% to break the deadlock. Had they failed to reach a decision Andrew Bailey, the governor, would have had the decisive vote.
It is the first time the committee has gone to a second vote and highlights the difficulty policymakers face in navigating the current economic climate, in which economic growth is stagnating - with at least one rate-setter fearing a recession- but inflation remains persistent.
Although the central bank voted to cut borrowing costs, it also raised its inflation forecasts on the back of higher food prices.
0:41
The bank predicted that the headline rate of inflation would hit 4% in September, up from a previous estimate of 3.75%.
The September inflation rate is used to uprate a range of benefits, including pensions.
The increase was driven by food, where the inflation rate could hit 5.5% this year. About a tenth of household spending is devoted to food shopping, which means it can have an outsized impact on inflation.
The Bank said this risked creating "second round effects," whereby a sense of higher inflation forces people to push for pay rises, which could push inflation even higher.
Economists at the Bank blamed poor harvests, weather conditions, and changes to packaging regulations but also - in a blow to the chancellor - higher labour costs.
It pointed out that a higher proportion of workers in the food retail sector are paid the national living wage, which Rachel Reeves increased by 6.7% in April.
Economists at the bank also blamed higher employment taxes announced in the Autumn budget. "Furthermore, overall labour costs of supermarkets are likely to have been disproportionately affected by the lower threshold at which employers start paying NICs… these material increases in labour costs are likely to have pushed up food prices."
There is also evidence that Employers' National Insurance increases are causing businesses to curtail hiring, the bank said. It comes as unemployment in the UK rose unexpectedly to a fresh four-year high of 4.7% in May. Separate data shows the number of employees on payroll has contracted for the fifth month in a row,
The Bank said the unemployment rate could hit 5% next year and warned of "subdued" economic growth, with one member - Alan Taylor - warning of an "increased risk of recession" in the coming years.
Hashtags

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles


The Independent
2 minutes ago
- The Independent
Darwin Nunez departs Liverpool after three eventful years
Liverpool have sold striker Darwin Nunez to Saudi Pro-League club Al-Hilal for £46.2m, concluding his three-year tenure at Anfield. Nunez, who joined from Benfica for an initial £64m (potentially rising to £85m), scored 40 goals in 143 appearances for Liverpool, including seven in 47 games last season. The Uruguay international had expressed a desire to leave in January and attracted interest from Napoli and AC Milan, though neither met Liverpool's valuation. Nunez's sale contributes to Liverpool's summer transfer income of approximately £190m from various player departures, including Luis Diaz. Liverpool are now seeking to sign another attacker to bolster their squad, having had a £110m bid for Newcastle 's Alexander Isak rejected, and are hesitant to make a second offer.


The Independent
2 minutes ago
- The Independent
Transfer news live: Liverpool dealt Isak blow, Arsenal hunt Eze, Garnacho to Chelsea
A summer transfer window dominated by the chase for centre forwards for many of the Premier League 's top clubs continues with Liverpool still pursuing Alexander Isak - but finding Newcastle resolute in their desire to keep the Swedish striker. Liverpool have sold Darwin Nunez to Saudi Arabian club Al Hilal for £46.3m, which should open up funds to bid again for Isak. Newcastle, however, have been clear that they do not wish to sell, even if Eddie Howe has admitted it is tricky to see a route back for the exiled forward. Manchester United, conversely, have got another major deal done. Benjamin Sesko was unveiled to supporters at Old Trafford a week before the start of the Premier League season and will join Bryan Mbeumo and Matheus Cunha in a new-look front three for Ruben Amorim, who has enjoyed a productive first summer transfer window. Arsenal are preparing to bolster their own forward line further by signing Crystal Palace 's Eberechi Eze. Palace want a fee in excess of £60m and an official offer could soon go in. Arsenal have also rejected a swap deal which have seen them sign Real Madrid's Rodrygo and send William Saliba the other way.


Telegraph
3 minutes ago
- Telegraph
Asda to complete botched IT transition six months late
Asda is on the brink of finishing its botched £1bn IT upgrade six months later than planned, with bosses hopeful that the delayed transition will bolster the supermarket's turnaround efforts. The troubled retail giant has told staff that it plans to finally disentangle its computer systems from former owner Walmart within weeks, as it moves the last-remaining stores to an entirely new digital network. It will bring an end to what has been a painful transition process for Asda, which has spent four years trying to complete the programme, dubbed Project Future. The supermarket had initially been aiming to finish the upgrade in February earlier this year. However, the project has been hit with a series of setbacks, including an IT update in March last year that led to thousands of workers receiving incorrect payslips. Delays had also put Asda at risk of a hefty fine after missing a cut-off date with Walmart, although the US retailer ultimately agreed to a revised timeframe. Hundreds of workers have been let go in the months leading up to the end of Project Future, which has been described by Asda as 'mission critical' to its revival plans. The upgrade was championed by Mohsin Issa, Asda's co-owner, who previously managed the supermarket between 2021 and 2024. He has since been replaced by Allan Leighton, who returned to the business as chairman in November. Mr Leighton has since argued that the retailer is not rushing efforts to improve its performance, saying earlier this year: 'There is absolutely no pressure on me or the business to come up with a quick fix. 'A quick fix would be completely the wrong thing to do.' He has, however, embarked on a major drive to win back shoppers – slashing prices and overhauling tired stores. Asda said profits would be materially lower this year as it seeks to reverse years of decline following the takeover by TDR Capital and the Issa brothers in 2021. The most recent figures from World Panel show that Asda's market share slipped from 12.8pc to 11.8pc in the year to the middle of July. That is compard to 15pc the time of its takeover in 2021. However, in May, Mr Leighton said sales data suggested performance was improving, saying: 'What we're looking at here is the business turning.'