The Bank of England has cut interest rates by 0.25% to 4.25%, aiming to support the UK economy as uncertainty rises. It marks the fourth reduction since August 2024.
The Monetary Policy Committee (MPC) warned that economic growth will likely remain subdued, predicting a further 0.3% slowdown over the next three years. Two members called for a larger 0.5-point cut in a split decision, while two voted to keep rates at 4.5%.
Growth is expected to stall through the rest of 2025, with concerns including the impact of US trade policy and ongoing uncertainty over the UK’s future economic direction. The Bank announcement came shortly before the UK Government confirmed a new trade deal with the US, which eases tariffs on cars, steel and aluminium. However, the Bank’s forecasts do not yet reflect the terms of that deal.
Inflation driven by higher council tax and utility bills will peak at 3.5% in the third quarter. Despite a slightly lower forecast, inflation is not expected to return to the 2% target until spring 2027.
The Bank also flagged the potential impact of the Chancellor’s recent £25 billion rise in employer national insurance, warning it could affect jobs, wages and prices.
The Trades Union Congress urged faster rate cuts to ease pressure on households and support business investment. Prolonged price rises have weakened consumer confidence, which remains fragile, and further economic recovery looks limited.
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