The Bank of England cut interest rates for the second time in four months, after inflation returned to normal levels earlier this year.

Rates were at 5% after policymakers lowered them over the summer – they fell again on Thursday.

Here the PA news agency looks at what the decision means and what the Bank expects to happen to the economy.

The Bank of England’s Monetary Policy Committee (MPC) has cut the base interest rate to 4.75%, a cut of a quarter of a point.

This is the second time interest rates have fallen this year, following a period of higher borrowing costs amid soaring inflation in 2022 and 2023.

Eight of the members of the Bank’s Monetary Policy Committee voted in favor of a reduction in the key rate, against one who preferred to keep it unchanged.

The base rate helps determine the cost of taking out a mortgage or loan.

Increases in recent years have left mortgage rates much higher than normal for most of the past decade.

But the latest cut is unlikely to lower mortgage rates immediately because it has been “almost entirely priced in” by providers, according to Laith Khalaf, an analyst at investment firm AJ Bell.

In fact, the impact of past interest rate increases continues to drive up borrowing costs for existing mortgage holders.

About 800,000 fixed-rate mortgages with an interest rate of 3% or less are expected to be refinanced on average per year through the end of 2027.

But variable mortgages “are expected to decline” following the reduction, Khalaf added.

The base rate also dictates the interest rates offered by banks on savings accounts, meaning these are likely to fall.

Raising interest rates is the central bank’s main way of reducing inflation – the measure of how quickly prices rise over time.

The main inflation figure, which covers the entire economy, fell to 1.7% in September, below the Bank’s 2% target, leading to a rate cut .

But inflation is expected to rise again towards the end of this year as energy costs rise during the winter.

Inflation is also expected to remain high for longer than expected following spending and tax rises announced in Labor’s autumn budget, the Bank said.

The MPC, which makes rate decisions, is scheduled to meet once again this year, and most experts believe it will not cut rates.

Mr Bailey reiterated his call for rates to be cut “gradually”, saying the Bank should not cut them “too quickly or too much”.

Sarah Coles, of investment platform Hargreaves Lansdown, said: “The Bank of England has made a further contribution to the road before it was widely expected to close for a while and wait for the dust to settle. »

She cited as reasons increased borrowing in the budget, increases in the minimum wage and increases in employer national insurance contributions, all of which were cited in the Bank’s latest report as likely to drive up the ‘inflation.

Rachel Reeves said cutting interest rates would be “good news” for millions of families, but households still face a challenge after Liz Truss’ mini-budget.

“Today’s interest rate cut will be good news for millions of families, but I have no illusions about the scale of the challenge households face after the previous government’s mini-budget “, declared the Chancellor.

“This Government’s first Budget set out how we make long-term decisions to lay the foundations for change by investing in the NHS and rebuilding Britain while ensuring workers don’t face higher taxes on their pay slips.”

Mortgage rates remain high, but a drop in the base rate would be good news for the real estate market. This also indicates that the Bank believes inflation is under control.

This is a small positive for consumers, as it means prices of everyday consumer items are increasing more slowly than before.

The Bank’s latest economic report also indicates that economic growth will be stronger than previous estimates next year, in part because of additional spending and borrowing planned in the budget.

Mr Bailey said the fall in inflation “is not only continuing, but has actually been faster than expected, and that’s a good thing and it’s encouraging.”

Donald Trump’s victory in the US election this week comes with the threat of tariffs, a key policy he has touted.

Many experts believe Mr Trump’s policies could ultimately contribute to higher inflation in the UK.

Mr Bailey said he would “work closely” with the US administration, but declined to speculate on potential Trump policies.

He said: “Let’s wait and see where things take us. I’m not going to prejudge what might happen, what might not happen, or where the policy will go.”

Mr Bailey added: “I think we need to watch the fragmentation of the global economy very carefully. I will say that.