Interest rate cut divides Bank committee as UK growth revised upward
THE BANK OF ENGLAND has cut interest rates from 4.5% to 4.25%—the lowest level since May 2023—as it attempts to strike a delicate balance between supporting a fragile recovery and guarding against persistent inflationary risks.
The decision, announced following the Monetary Policy Committee's latest meeting, was far from unanimous. Out of the nine members, five voted for the 0.25% cut, two favoured a steeper reduction to 4%, and two wanted to keep rates on hold.
'This is an important moment for the UK economy,' said the BBC's Economics Editor Faisal Islam, noting that rates are now down a full percentage point from their peak last summer. 'Further cuts are expected but they will likely be gradual and cautious.'
Interest rates had climbed steadily from late 2021 in response to post-pandemic inflation, peaking at 5.25% in August 2023. Since then, falling inflation and a slowdown in consumer activity have prompted a shift toward easing.
The rate cut aims to make borrowing cheaper, thereby encouraging spending and investment. Mortgage-holders on tracker deals will see immediate savings—around £29 per month on average—but savers are likely to see a dip in returns.
In a fresh economic outlook, the Bank upgraded its growth forecast for 2025 to 1%—up from February's 0.75% prediction—driven by stronger-than-expected performance in the first quarter. However, the longer-term picture is less rosy: UK growth in 2026 has been revised down to 1.25%, with global growth also forecast to slow due to international trade tensions.
The economic backdrop is being shaped in part by geopolitical uncertainty, including a fresh round of tariffs introduced by US President Donald Trump. Bank governor Andrew Bailey acknowledged the unpredictable global landscape but insisted the UK remains on a 'gradual path' of rate easing.
Bailey also welcomed news of a pending UK-US tariff deal, saying it could help reduce uncertainty. However, he confirmed that the Bank had not yet been fully briefed on the agreement's details.
Mixed reactions
Trade union Unite described the interest rate cut as 'long overdue' but called for broader measures to improve living standards. General secretary Sharon Graham said: 'This must include a joined-up industrial strategy to tackle energy profiteering, rebuild our industrial base and boost the economy.'
Meanwhile, Nigel Green, CEO of the financial advisory group deVere, warned that the Bank was moving too cautiously. 'A half-point cut would have shown the Bank is ready to act decisively,' he said, arguing that the risks of hesitation outweigh the risks of bold action in the current climate.
Chancellor Rachel Reeves struck a more optimistic tone, calling the rate cut 'welcome news' for homeowners and businesses, while Shadow Chancellor Mel Stride criticised Labour's handling of the economy, claiming 'interest rates remain high' because of government mismanagement.
Housing market impact
Nathan Emerson, CEO of Propertymark, said the rate cut would be a boost for the housing sector: 'With the busier spring and summer months now here, this base rate reduction should attract more buyers and sellers and improve affordability.'
While today's rate cut is not a silver bullet, it marks a further step in what may become a sustained effort to ease financial pressure on UK households and stimulate economic activity amid a shifting global landscape.
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