Bank of England announces cut in interest rates

Economists on the Bank of England’s Monetary Policy Committee have voted to cut interest rates from 4.5% to 4.25%.

MPC members voted 5–4 in favour of the decision, with two members preferring a deeper rate cut of 0.5 points, and two supporting no change to the base rate. The split in the level of cuts exemplifies comments made by Bank of England Governor, Andrew Bailey, that set out a cautious approach to lowering interest rates. Interest rates are now one percentage point lower than their 5.25% peak in 2023-24 as the Bank took action to curb double-figure rates of inflation.

Despite inflation remaining above the Bank of England’s target 2% rate, economists factors in the wider economy that were slowing inflation were sufficient to support the decrease in the Bank’s base interest rate. The Bank cited falls in wholesale energy prices since its last Monetary Policy Report in February, as well as limited negative impact on prices on UK inflation from changes to global trade brought about by US President Trump’s imposition of tariffs.

Alongside the interest rates decision, the Bank of England also published its May Monetary Policy Report, which details the organisation’s outlook for the UK economy. The Bank aniticipates that inflation may tick up to around 3.5% in the third quarter of 2025, before declining back down towards the 2% target rate, with changes in energy prices the main contributor. It has also been suggested that tariffs on imports into the US could see more cheaper goods diverted to other markets, including the UK, which would further limit inflation. The Bank also confirmed rising employer National Insurance Contributions in April have only had a fairly small impact on prices.

Forecasts for the wider economy suggest UK GDP growth will top 0.6% for the first quarter of 2025, boosted by the stockpiling of goods ahead of tariffs being introduced; official figures will be released by the Office of National Statistics in the coming days.