Bank of England Slashes Interest Rates to 4.5% Amid Economic Slowdown
The Bank of England has cut interest rates to 4.5%, the lowest level since June 2023, in a bid to provide financial relief to borrowers amid a sluggish economy. The decision, made by a 7-2 majority of the Monetary Policy Committee (MPC), comes alongside a significant downgrade in the UK’s growth forecast for 2025, from 1.5% to 0.75%. The Bank warned that households will face renewed pressure from rising inflation, which is expected to peak at 3.7% by autumn, nearly double the government’s 2% target.
Governor Andrew Bailey described the inflation spike as a temporary “bump in the road” but emphasised the Bank’s commitment to a “gradual and careful approach” to further rate cuts. He acknowledged the challenges posed by weak economic growth, declining business confidence, and rising energy prices, which are expected to drive inflation higher in the short term. Despite these pressures, the Bank anticipates inflation will eventually fall back to target levels by the end of 2027.
The rate cut follows a period of economic stagnation, with the UK economy narrowly avoiding a recession. The Bank’s forecasts suggest the economy shrank by 0.1% in the final quarter of 2024 and will grow by just 0.1% in the first quarter of 2025. Chancellor Rachel Reeves welcomed the rate cut but expressed dissatisfaction with the growth outlook, pledging further measures to stimulate the economy.
The decision has sparked mixed reactions, with some critics arguing the Bank should have been bolder in its approach. Reform UK’s Richard Tice called for a larger cut, while the Liberal Democrats urged the government to reconsider its fiscal policies, including a planned rise in national insurance contributions, which they claim is stifling growth.
Looking ahead, the Bank faces a delicate balancing act as it navigates global uncertainties, including potential trade tensions and the impact of climate change policies. While the rate cut offers some relief to borrowers, the broader economic outlook remains challenging, with households and businesses bracing for further financial pressures.
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