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The Bank of England on Thursday cut interest rates to 4 per cent as it warned Rachel Reeves’s tax raid was driving up prices in shops.
Governor Andrew Bailey warned that surging food prices will limit the bank’s ability to keep cutting rates, meaning borrowing costs will remain higher for longer.
While the drop in rates from 4.25 per cent was widely anticipated, an unprecedented split saw Mr Bailey force the Monetary Policy Committee (MPC) to vote twice after a deadlocked initial vote.
It is the first time since 1997, when the bank was granted independence, that it has had to re-run a vote. The initial vote was a three-way split with four votes in favour of a cut, four in favour of holding rates, and one vote for a steeper cut.
Following its decision, the Bank said that a faster-than-expected rise in food prices would see inflation peak at 4 per cent this September, twice its 2 per cent target.
Bailey said: “We’ve cut interest rates today, but it was a finely balanced decision. Interest rates are still on a downward path, but any future rate cuts will need to be made gradually and carefully.”
The bank also warned that there were signs that the economy was slowing down, with increasingly nervous households stashing more away in savings as consumer sentiment sours.
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