The Bank of England has cut its base rate by 0.25 percentage points to 3.75% after a tight 5–4 MPC vote, saying it expects inflation to be “closer” to its 2% target early next year.

Interest rates are now at their lowest level in almost three years.

Governor Andrew Bailey said: “We’ve passed the recent peak in inflation and it has continued to fall, so we have cut interest rates for the sixth time, to 3.75% today… with every cut we make, how much further we go becomes a closer call.”

Some policymakers argued rates should have been held due to persistent services inflation and the risk of “lasting changes in wage and price-setting behaviour”, while other members backed the cut amid worries about weakening consumer demand.

Chancellor Rachel Reeves welcomed the move, saying: “This is the sixth interest rate cut since the election – that’s the fastest pace of cuts in 17 years, good news for families with mortgages and businesses with loans. But I know there’s more to do to help families with the cost of living.”