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

The central bank said future cuts would be gradual amid higher inflation forecasts after the new government introduced spending and tax increases in its budget.

The Bank of England's decision to cut its benchmark interest rate for a second time came as a surprise to many, but the central bank has been paving the way for the move for several months now.