The bank said that by a 5-4 margin, its nine-member policymaking panel backed a quarter-point reduction in its main interest rate to five per cent from 5.25 per cent.
Economists were divided as to whether the bank would cut rates given persistent price pressures in the services sector, which accounts for about 80 per cent of the British economy.
Yet inflation in the UK overall has already hit the bank's target of two per cent.
Interest rates in the UK have been unchanged for a year after a dramatic series of hikes but it has been clear for a few months that the Monetary Policy Committee had been moving towards a cut.
"Inflationary pressures have eased enough that we've been able to cut interest rates today," bank governor Andrew Bailey said on Thursday.
"But we need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much.
"Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country."
Central banks around the world dramatically increased borrowing costs from the lows seen during the coronavirus pandemic when prices started to shoot up.
First the inflation was a result of supply-chain issues built up during the pandemic and then because of Russia's invasion of Ukraine, which pushed up energy costs.
Higher interest rates, which cool the economy by making it more expensive to borrow, have helped ease inflation but they have also weighed on the British economy, which has barely grown since the pandemic rebound.
Critics of the Bank of England say it is being overly cautious about inflation and keeping interest rates too high for too long will unnecessarily weigh on the economy.
That charge has also been levelled against the US Federal Reserve, which has also kept rates unchanged in recent months, but like the Bank of England is mulling when to start cutting.
Some central banks, including the European Central Bank, have started reducing rates but are doing so cautiously.
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