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 that 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 is set to cut interest rates later Thursday for the second time in three months, as inflation has fallen to its lowest level in more than three years. However, economists warn that worries about the future path of prices following last week's tax-raising budget from the new Labour government and the economic impact of U.