The Bank of England reduced its benchmark interest rate by 25 basis points to 4.25% on Thursday, amid subdued economic momentum and easing inflation pressures.
The widely anticipated move is aimed at supporting growth as the UK economy contends with weak output and external uncertainties, particularly around global trade.
The rate cut comes at a time when global economic activity remains clouded by geopolitical tensions and trade-related uncertainty, notably stemming from US President Donald Trump’s tariff policies.
The Bank of England’s decision followed the Federal Reserve’s move to keep US interest rates unchanged at 4.25% to 4.5%, with Fed Chair Jerome Powell, who has faced repeated criticism from President Trump, emphasizing that rate cuts would not come without greater clarity on trade policy.
The BOE’s Monetary Policy Report supported market expectations for three additional cuts by year-end, which would bring rates down to 3.5%. Under that trajectory, inflation is projected to return to the 2% target by early 2027.
The central bank also revised its inflation forecast for the third quarter downward to 3.5% from 3.7%, citing lower energy prices.
The decision to cut rates
The Bank of England’s Monetary Policy Committee saw a split in views, with five members supporting a quarter-point rate cut, two favoring a larger half-point reduction, and two voting to maintain current rates.
The committee reiterated its stance that any easing should proceed in a “gradual and careful” manner, citing global volatility tied to US tariffs.
“Inflationary pressures have continued to ease so we’ve been able to cut rates again today,” Governor Andrew Bailey said.
“The past few weeks have shown how unpredictable the global economy can be. That’s why we need to stick to a gradual and careful approach.”
Headline inflation cooled to 2.6% in the twelve months to March, down from 2.8% the previous month.
The moderation in price pressures has given policymakers some flexibility to ease borrowing costs without risking a resurgence in inflation.
Impact of the rate cut
Domestically, the UK economy has been showing signs of stagnation, with consumer sentiment soft and business investment lackluster.
The reduction in the policy rate is expected to bring some relief to households and businesses facing tight financial conditions.
Lower interest rates typically reduce borrowing costs on mortgages, personal loans, and business credit, thereby easing pressure on consumers and stimulating investment activity.
However, the move is likely to be less welcome news for savers, who may see diminished returns on savings accounts and other interest-bearing instruments.
The Bank of England’s decision places it among a growing number of global central banks opting to loosen policy in response to deteriorating growth prospects.
Market participants will now watch closely for signals on whether further easing may follow, especially if economic data continues to underperform expectations.
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