Chancellor Rachel Reeves welcomes the cut, but says she is "under no illusion about the scale of the challenge facing households".

The Bank of England has cut its main interest rate by a quarter of a percentage point after inflation across the U.K. fell below its target rate of 2%.

The Bank of England has cut interest rates to 4.75 per cent after inflation fell to a three-year low in September. The eight-to-one decision to cut the base rate by 0.25 percentage points was in line with the expectations of economists polled by Reuters.

The Bank of England is likely to cut interest rates on Thursday for only the second time since 2020 but the big question for investors is whether the BoE sends a signal about its subsequent moves after the government's inflation-raising budget.

Most analysts predict the rate will fall from 5% to 4.75% when the decision is announced at 12:00 GMT.