Bank of England Cuts Interest Rates to 4.5% Amid Growth Forecast Downgrades
The Bank of England lowers borrowing costs while revising the UK’s economic growth forecasts and inflation expectations.
The Bank of England has reduced the base interest rate from 4.75% to 4.5%, following a decision by its Monetary Policy Committee (MPC) that reflects ongoing economic challenges.
This marks the lowest rate since June 2023. The MPC's unanimous vote for a quarter-point decrease follows similar cuts made in August and November of the previous year.
In conjunction with the interest rate reduction, the Bank has downgraded its growth projection for the UK economy, lowering it to 0.75% for 2025 from a previous estimate of 1.5%.
Despite this near-term curtailment, longer-term forecasts appear slightly more optimistic, with expected growth rates of 1.5% for both 2026 and 2027, marking an increase of 0.25 percentage points from earlier predictions.
Bank Governor Andrew Bailey stated the rate cut would provide relief for many, emphasizing the importance of closely monitoring the UK economy and global factors while adopting a cautious approach to further rate reductions.
The decision arrives during a period marked by rising inflation indicators, with forecasts estimating inflation could peak at 3.7% later in the summer, due primarily to increased energy prices, as well as escalating water bills and bus fares.
The Bank has indicated that inflation may not return to its target rate of 2% until the final quarter of 2027, approximately six months later than earlier forecasts suggested.
Chancellor Rachel Reeves noted the interest rate cut as positive news, although she expressed dissatisfaction with the downgraded growth rate.
Reeves reaffirmed the Labour Party’s commitment to enhancing economic growth as outlined in their 'Plan for Change'.
Furthermore, the Bank has projected an increase in unemployment, with expectations that the jobless rate will peak at 4.75%, up from previous estimates of 4.5%.
Factors contributing to this rise include increased national insurance contributions for employers, which have already prompted job cuts among several large firms, including Sainsbury’s.
The rate decision was not unanimously supported; two MPC members advocated for a sharper cut to 4.25%, while the other seven backed the quarter-point reduction.
The Bank also indicated that its forecasts do not yet account for the potential implications of changes to US trade tariffs under former President Donald Trump.
As a result of the cut, average monthly payments for borrowers on tracker mortgage deals could decrease by approximately £28.98, with standard variable rate mortgage holders potentially seeing a drop of £17.17, assuming full pass-through of the rate reduction by lenders.
This marks the lowest rate since June 2023. The MPC's unanimous vote for a quarter-point decrease follows similar cuts made in August and November of the previous year.
In conjunction with the interest rate reduction, the Bank has downgraded its growth projection for the UK economy, lowering it to 0.75% for 2025 from a previous estimate of 1.5%.
Despite this near-term curtailment, longer-term forecasts appear slightly more optimistic, with expected growth rates of 1.5% for both 2026 and 2027, marking an increase of 0.25 percentage points from earlier predictions.
Bank Governor Andrew Bailey stated the rate cut would provide relief for many, emphasizing the importance of closely monitoring the UK economy and global factors while adopting a cautious approach to further rate reductions.
The decision arrives during a period marked by rising inflation indicators, with forecasts estimating inflation could peak at 3.7% later in the summer, due primarily to increased energy prices, as well as escalating water bills and bus fares.
The Bank has indicated that inflation may not return to its target rate of 2% until the final quarter of 2027, approximately six months later than earlier forecasts suggested.
Chancellor Rachel Reeves noted the interest rate cut as positive news, although she expressed dissatisfaction with the downgraded growth rate.
Reeves reaffirmed the Labour Party’s commitment to enhancing economic growth as outlined in their 'Plan for Change'.
Furthermore, the Bank has projected an increase in unemployment, with expectations that the jobless rate will peak at 4.75%, up from previous estimates of 4.5%.
Factors contributing to this rise include increased national insurance contributions for employers, which have already prompted job cuts among several large firms, including Sainsbury’s.
The rate decision was not unanimously supported; two MPC members advocated for a sharper cut to 4.25%, while the other seven backed the quarter-point reduction.
The Bank also indicated that its forecasts do not yet account for the potential implications of changes to US trade tariffs under former President Donald Trump.
As a result of the cut, average monthly payments for borrowers on tracker mortgage deals could decrease by approximately £28.98, with standard variable rate mortgage holders potentially seeing a drop of £17.17, assuming full pass-through of the rate reduction by lenders.
