Bank of England Slashes Interest Rates to 4.5% Amid Economic Uncertainty
The Bank of England has cut interest rates to 4.5%, the lowest level in over 18 months, while also slashing its growth forecast for the UK economy. The central bank now expects the economy to grow by just 0.75% in 2025, down from its previous estimate of 1.5%. Governor Andrew Bailey described the decision as “welcome news to many” but warned of a “bumpy road ahead” due to economic uncertainty.
The rate cut, the third since July, is expected to provide some relief to borrowers, particularly those on tracker mortgages, who could see a £29 reduction in monthly repayments. However, savers may face lower returns as banks adjust savings rates. The decision was made in a split vote, with two members of the Monetary Policy Committee advocating for a larger 50 basis point cut.
The Bank also warned of rising inflation, predicting it could peak at 3.7% later this year before gradually falling back to the 2% target by the end of 2027. Higher energy and water bills are expected to contribute to this inflationary pressure. Despite the downgraded growth forecast, the Bank upgraded its predictions for 2026 and 2027, expecting growth of 1.5% in both years.
Prime Minister Sir Keir Starmer welcomed the rate cut, stating it would put “more money in people’s pockets,” while Chancellor Rachel Reeves acknowledged the need for stronger economic growth. However, critics, including the Liberal Democrats, described the growth figures as “putrid” and called for a rethink of government policies, particularly the planned increase in National Insurance contributions.
The Bank’s decision has led to a drop in the value of the pound, with markets now pricing in further rate cuts later this year. Analysts suggest the Bank will take a gradual approach to future cuts, with the next likely to occur in May. The move comes amid concerns over weak productivity and economic stagnation, with the UK narrowly avoiding a recession in late 2024.
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