Bank of England Cuts Interest Rates to 4.25% Amid Economic Uncertainty

In a move aimed at alleviating pressure on the UK economy, the Bank of England has reduced interest rates by a quarter-point to 4.25%. This marks the fourth rate cut since August 2024 as policymakers continue to grapple with rising economic uncertainty and subdued growth prospects.

The decision, made by the Bank’s Monetary Policy Committee (MPC), reflects concerns over the broader global economic environment, including the impact of US trade policy on international markets. The MPC's revised forecasts now predict that UK economic growth will slow by an additional 0.3% over the next three years, following earlier reductions in growth projections.

The MPC's fourth rate cut since last August is expected to lower mortgage costs for homeowners

The Bank's warning of stagnation in the UK economy was delivered just before a major trade deal between the UK and the US was finalized. This deal is expected to reduce tariffs on UK exports, including cars, steel, and aluminum, but the long-term economic impact remains uncertain, particularly in light of a global trade slowdown linked to US policies.

Despite the MPC's split vote—where two members called for a larger 0.5 percentage point cut—the decision to reduce rates by just 0.25% reflects caution in light of persistent inflation risks. The Bank continues to prioritize maintaining stable inflation, aiming to bring inflation back to its 2% target by spring 2027, although it acknowledges that inflation will remain above this target for several more years.

The Bank's Governor, Andrew Bailey, highlighted that inflationary pressures have eased, allowing for the rate cut, but emphasized the need for a gradual approach moving forward. "The global economy remains unpredictable, and we must remain vigilant in managing inflation while supporting growth," he said.

The rate cut is expected to offer some relief to consumers and businesses, but there are concerns that inflationary pressures—driven by higher utility costs and taxes—may undermine the impact. The Trades Union Congress (TUC) has called for more aggressive rate cuts to better support households and businesses struggling with rising costs.

As the UK economy faces further challenges, including weakened business and consumer confidence, the Bank of England’s cautious approach signals ongoing efforts to balance economic stability with the need for continued growth.