For the first occasion in over four years, the Bank of England has reduced its interest rates owing to a drop in UK inflation to the aimed 2 per cent rate. The core rate of the bank was lowered by a quarter-point to 5 per cent by the Monetary Policy Committee on Thursday; this follows its sustained level of 5.25 per cent for the past year, which was an attempt to checkpoint inflation.
Whilst the prime inflation reduced to the 2 per cent goal in May, remaining there through June, inflation within services remains persistently high. The most recent reduction in rates by the MPC was in March 2020 amid the Covid-19 pandemic peak.
Following the cut in interest rates, Sterling hit a four-week low against the dollar after having maintained its position at a 16-year high of 5.25 per cent since the previous August. The pound continued to fall, plummeting 0.75 per cent against the dollar, down to $1.276, immediately post-announcement. The two-year gilt yields sensitive to interest rate dropped to 3.76 per cent after being reduced by 0.06 points. – Copyright The Financial Times Limited 2024.