The Bank of England (BOE) has cut interest rates for the first time since 2009 as it looks to stabilise the economy in the wake of the Brexit vote.

The Bank Rate has been cut from 0.5% to an historic low of 0.25%.

Lower interest rates are generally seen as being good for borrowers, although there has been concern that the cut may not be passed on by banks to their customers, as the rate was already close to zero.

The BOE has attempted to mitigate this by launching what it calls a ‘Term Funding Scheme’, which will provide funding to banks – at interest rates close to the Bank Rate – that will allow lending rates to be cut.

It has also increase a £10bn purchase of corporate bonds and a £60bn rise in Quantitative Easing.

Bank of England governor Mark Carney. Image by Twocoms/

Matthew Walker, chief economist at the Resolution Foundation, said the bank can only do so much and that the UK’s longer-term economic performance rests largely on what sort of Brexit deal Theresa May and her new government can strike. 

“It’s that reality which explains why the bank today downgraded its forecasts for growth, employment, pay and incomes through to 2018, even after accounting for its package of policy action,” said Mr Walker.

Daniel Mahoney, head of research at the Centre for Policy Studies, said the BOE’s loosening of monetary policy could prove “problematic”. 

“The falling pound means that inflationary pressures are already building up, and today’s decision will exacerbate them,” he warned. 

Dr Rebecca Harding, the British Bankers’ Association’s chief economist, said: “The decision to cut interest rates and increase quantitative easing sends a clear signal that the Bank of England is taking a ‘whatever it takes’ approach to stabilising the economy.

“Weak post-Brexit data is creating a perception that the economy is likely to slow and the decision to reduce rates has been made on the basis of a perception of risk.”


Santander has already confirmed that it will pass on the reduction in full, that business loans linked to the base rate will move in line with the reduction and that existing savings accounts will not be reduced by more than 0.25%. 

Nationwide has said it is “working through” what the rate cut may mean for its savings, variable rate mortgage and current account customers. 

The Council of Mortgage Lenders (CML) said the pricing of mortgage rates is still a matter for individual lenders as the Bank Rate is not the only influence on mortgage pricing. 

It points out that the average mortgage rate has fallen from 3.8% to 2.9% since March 2009, while the Bank Rate has – until today – remained the same. 

CML director general Paul Smee said: “The mortgage market is at present well capitalised, resilient and open for business. 

“Housing market fundamentals are sound. So, we see today’s cut as a wider reaction to the economic effects of recent political uncertainty.” 


Former pensions minister Ros Altmann said lower interest rates make pensions more expensive. 

“The amount of money that is needed to pay promised pensions over future decades depends on how much return one is expected to earn on the money set aside for pensions right now,” she said. “The lower the future expected returns, the more money must be put in today.”

Ms Altmann said a fall in interest rates will see deficits in final salary-type pensions increase, putting pressure on employers to pay more money into pension schemes. 


Yvonne Braun, director of policy for the Association of British Insurers (ABI), said the BOE’s decision was “disappointing news” for anyone looking to buy an annuity. 

“While we recognise there are wider economic judgements underlying this decision, continued low interest rates and sustained quantitative easing are the main factors keeping annuity rates low," she said.

“This further drop of the interest rate to unprecedented low levels and the additional injection of quantitative easing are likely to put downward pressure on annuity rates.”