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Published: 01/08/2024
The Bank of England’s Monetary Policy Committee (MPC) voted by a narrow majority (5-4) to reduce the Bank Rate to 5% at its August meeting.
Four members of the committee voted for the base rate to remain at 5.25%, where it has been since August 2023.
In setting out the context to the vote, the MPC said: ‘It is now appropriate to reduce slightly the degree of policy restrictiveness. The impact from past external shocks has abated and there has been some progress in moderating the risks of persistence in inflation’.
‘Although GDP has been stronger than expected, the restrictive stance of monetary policy continues to weigh on activity in the real economy, leading to a looser labour market and bearing down on inflationary pressures.’
Reacting to the news, Dr David Crosthwaite, Chief Economist at BCIS, said: ‘This is a much-needed reduction to the base rate. Although only a 25-basis point cut, this could be the start of a downward trend in interest rates given that inflation appears to be under control.
‘The reduced cost of borrowing should make the UK more attractive to private investors and attracting private investment to support construction is crucial. It’s something which has been lacking through recent years of challenging economic conditions and instability.’
Reporting further on the backdrop to the vote, the MPC said there has been a slight improvement in bank lending appetite for some firms in sectors, including construction. However, while business services and manufacturing firms had reported a pickup in activity since May, construction activity had fallen. Further, agents reporting to the Bank of England said they didn’t expect meaningful growth to emerge in construction until 2025.
The MPC report said: ‘Persistent high costs, combined with planning delays, has meant the volume of construction projects progressing remains low. In general, though, contacts mention cost inflation less often as a deterrent to investment than previous updates.’
The MPC’s next vote will be published on 19 September 2024.
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