Bank of England Slashes Interest Rates to 4.5% Amid Economic Challenges
The Bank of England has cut interest rates to 4.5%, the lowest level since June 2023, in a bid to stimulate economic growth amid a challenging economic outlook. The decision, made by a 7-2 vote, saw two members of the Monetary Policy Committee (MPC) advocate for a larger cut to 4.25%. This marks the third rate cut in seven months, as the Bank seeks to address sluggish growth and inflationary pressures.
The Bank also revised its growth forecast for 2025, slashing it from 1.5% to 0.75%, citing weak productivity and economic stagnation. Inflation is expected to rise to 3.7% later this year, driven by higher energy, water, and bus fares, before gradually easing back to the 2% target by late 2027. Governor Andrew Bailey described the economic outlook as “unambiguously bleak,” warning of “bumps on the road” ahead.
The rate cut is expected to provide some relief to borrowers, particularly those on tracker mortgages, who will see immediate reductions in repayments. However, savers may face lower returns as banks adjust savings rates downward. The FTSE 100 surged to a record high following the announcement, reflecting market optimism about future rate cuts. Analysts predict further reductions in May and August, with some suggesting the Bank could cut rates up to six times this year.
Chancellor Rachel Reeves welcomed the decision but expressed dissatisfaction with the UK’s growth rate, vowing to push forward with measures to boost the economy. Meanwhile, critics, including the Liberal Democrats, called for a reversal of recent tax hikes and a focus on growth-oriented policies. The Bank’s cautious approach reflects ongoing concerns about inflation and global economic uncertainty, including potential trade tensions and energy price volatility.
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