The Bank of England (BoE) has reduced its Bank Rate by 25 basis points to 5%, marking its first rate cut since the Covid response. This decision, made during the BoE's August meeting, follows a year of maintaining the rate at a 16-year high.

The decision was tightly contested within the Monetary Policy Council, with four members advocating for unchanged borrowing costs. The recent dip in UK inflation and increased services prices played significant roles in this balanced deliberation. Despite these conflicting factors, the Committee anticipates a decline in headline inflation and expects inflation expectations to align with the target.

Market projections suggest a further 38 basis points cut in 2024, a decrease from the previously anticipated 56 basis points before this Thursday's reduction. Current market rates indicate the Bank Rate at 4.9% by Q4 2024, dropping to 4.1% in Q4 2025, and further to 3.7% by Q4 2026.

Inflation forecasts predict a rise in CPI to approximately 2.75% in the latter half of 2024, as the impact of energy base effects diminishes.