BoE has cut rates from 4.75% to 4.5%. The decision, taken by the Bank’s Monetary Policy Committee (MPC), comes as the UK economy faces sluggish growth and rising concerns over global trade policies. The move follows a period of stagnation in monetary policy. In its last meeting on December 18, the central bank voted 6-3 in favour of maintaining the rates at 4.75%.
For the fiscal year 2025, the BoE’s market outlook is leaning on the “weak” side, with GDP growth also estimated at 0.75%, half the rate forecasted in November. The labor market is expected to feel the impact, with unemployment projected to rise to just below 5% over the next two years.
The Bank has also shed light on the growing uncertainty surrounding US President Donald Trump’s trade policies. Trump’s approach to international trade, including the possibility of new tariffs, has raised concerns among UK policymakers.
BoE also forecasted that the UK economy is set to narrowly avoid a recession but has downgraded its growth outlook, which is a setback for the government.
Inflation is also predicted to rise sharply later in the year, driven by higher water bills, bus fares, and energy costs. As a result, the Bank warned that inflation will take longer to return to its target of 2%, which could put the country in a precarious position in the coming months.
Governor Bailey calls for businesses to exercise caution
Speaking at a press conference after the rate cuts, BoE Governor Andrew Bailey had sheer optimism and caution. He indicated UK could further face rate cuts.
“We expect to be able to cut bank rate further as the disinflation process continues [however] we will have to judge, meeting by meeting, how far and how fast,” Bailey said.
UK Chancellor Rachel Reeves also welcomed the BoE’s decision. Reeves called the benefits of lower interest rates for households and businesses an upward move.
“The interest rate cut will help to ease the cost-of-living pressures felt by families across the country and make it easier for businesses to borrow or grow,” Reeves stated. “However, I am still not satisfied with the growth rate. Our promise in our Plan for Change is to go further and faster to kickstart economic growth to put more money in working people’s pockets.“
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