BoE Lowers Base Rate to 4% in Split Vote, Flags Risks from Rising Food Inflation

The Bank of England has voted to cut the UK’s base interest rate by 0.25%, bringing it to 4% — its lowest level since March 2023. This marks the fifth rate reduction in 12 months, aimed at supporting economic growth amid signs of weakening activity and rising unemployment.

However, despite the rate cut, the Bank issued a warning: inflation could climb to 4% by September due to mounting food costs, driven by both global supply shocks and domestic policy pressures. For borrowers, the latest move could mean more competitive mortgage deals — but with lingering inflation, the window to act may be limited.

In a narrow 5-4 vote, the Bank’s Monetary Policy Committee opted for a 0.25% reduction, taking the base rate to 4%. The cut was widely expected, but the split decision highlights ongoing tension between the need to stimulate growth and the risk of stoking inflation.

Governor Andrew Bailey called the move a “finely balanced decision,” and noted that while further cuts are likely, they will be rolled out “gradually and carefully.” Mortgage lenders are expected to react in the coming weeks, possibly triggering a fresh wave of product repricing for fixed and tracker deals.

The Bank now projects that inflation could rise to 4% by September — twice the official target — largely due to rising food costs. Global agricultural disruptions, such as climate shocks, are pushing up prices for key commodities like chocolate and coffee.

On the domestic front, business groups have blamed recent government measures — including a £25bn hike in employer National Insurance and a 6.7% increase in the national living wage — for driving up labour costs, forcing retailers to pass those costs on to consumers. As a result, inflation is not expected to return to the 2% target until 2027.