The Bank of England has reduced its base rate to 4.5 per cent — the third such cut in six months — as policymakers seek to shore up Britain’s weakening economy.
In a 7-2 vote, the nine-member monetary policy committee opted for a 0.25 percentage point drop, though two members advocated a sharper 0.5 percentage point reduction. Governor Andrew Bailey called the move “welcome news” for borrowers, while stressing that the Bank will continue to strike a “gradual and careful approach” to any further cuts.
Although inflation sits at a more moderate 2.5 per cent, the central bank warned that the headline rate will rise temporarily to around 3.7 per cent this summer, due in part to higher energy bills and increased employer National Insurance contributions taking effect in April. Despite that near-term inflation bump, the Bank’s latest forecasts suggest the UK will narrowly avoid a technical recession as GDP inches back into positive territory in early 2025. However, it now expects inflation to stay above its 2 per cent target until late 2027.
The rate cut comes against a backdrop of global economic uncertainty, notably US President Donald Trump’s expansion of import tariffs on countries such as China, Canada and Mexico. While the resulting trade tensions could raise costs worldwide, Bank officials say the immediate impact on UK price levels remains “highly uncertain”. A key factor influencing future rate decisions could be wage growth, which some policymakers fear could reignite inflation if it outpaces productivity.
Financial markets had already priced in the likelihood of a 0.25 percentage point cut, pushing the FTSE 100 to a record high above 8,700 points and nudging sterling lower against the dollar. Homeowners and prospective buyers may see mortgage rates come down in the wake of the decision, but the Bank’s slower pace of cuts contrasts with more aggressive moves seen during previous downturns. In a sign of greater caution, the Bank also revised down its UK growth forecast for 2025 to 0.75 per cent, warning that escalating trade conflicts, falling consumer confidence and looming domestic tax rises could all weigh on the recovery.
