The Bank of England’s Monetary Policy Committee (MPC) has voted 7 – 2 to cut the base rate to 4.5% today, in a widely expected move.

The decision follows a freeze on the base rate at 4.75% at the last meeting in December.

The rate is now the lowest for 18 months.

In the UK, CPI inflation fell unexpectedly in December to 2.5% from 2.6% in November after two months of rises, providing some relief for Chancellor Rachel Reeves. However, the relief is expected to be temporary.

The Bank of England said it expected the UK economy to grow by 0.75% in 2025, down from a previous forecast of 1.5%

At its meeting ending today (6 February), the MPC voted by a majority of 7–2 to cut the Bank Rate by 0.25% to 4.5%.

Two members preferred to reduce the bank rate by 0.5% to 4.25%.

In a statement, the MPC said: “In support of returning inflation sustainably to the 2% target, the committee judges that there has been sufficient progress on disinflation in domestic prices and wages to reduce Bank Rate to 4.5% at this meeting.

“Based on the committee’s evolving view of the medium-term outlook for inflation, a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate.”

Reaction to the MPC decision was one of little surprise.

Lily Megson, policy director at My Pension Expert, said that base rate cut would be celebrated as good news but could cause issues for savers nearing retirement.

She said: "For many Britons, a lower cost of borrowing is positive, but the flip side is that lower interest rates will mean challenges for savers, especially those nearing retirement. Indeed, we should expect many retirement planners to now question whether their strategy and financial products still serve their interests. However, without reliable support, these questions can be hard for people to answer.”

Lindsay James, investment strategist at Quilter Investors, said today's announcement shows there may be trouble ahead for the UK economy: “In a sign that the UK economy is looking increasingly fragile, even as inflation remains at palatable levels, the Bank of England has responded by lowering interest rates to 4.5%.

"The BoE’s prediction that inflation peaks at 3.7% in Q3 this year is quite shocking given previous forecasts and certainly won’t be helped by the April hike in minimum wages or higher National Insurance contributions on employers. So much so the previously expected pickup in growth this year is quickly becoming wishful thinking, however this remains the Bank’s key focus.

"Hiring has remaining subdued, while data from the service economy has highlighted that the pace of job cuts has accelerated to its fastest in four years as wage growth continues to outpace inflation."

Hetal Mehta, head of economic research at wealth manager St. James’s Place said the Bank was not confident in the UK labour market.

She said: “Wage growth may be sticky, and surveys show price expectations have firmed in recent months but a variety of indicators are showing employment strains, complicating the policy stance.”

She added that the Bank would likely be keeping a close eye on the tariffs being levied by the US against Canada, Mexico and China, and considering how it should respond should the UK also be subject to similar protectionist measures.

• The next Bank of England base rate decision will be on 20 March.