The Bank of England has announced a reduction in its base interest rate from 4.75% to 4.5%, marking a significant shift in monetary policy as it works to stimulate economic growth amid ongoing concerns over sluggish performance and inflation.
The 0.25% rate cut announced on Thursday comes at a time when the UK economy has shown signs of stagnation, with growth forecasts downgraded and inflationary pressures still looming. The decision aims to support consumers and businesses by making borrowing more affordable, but it also signals the central bank’s cautious approach in navigating the challenges of the UK economy.
Bank Governor Andrew Bailey expressed optimism about the rate cut, noting that it would be welcome news for borrowers. “We’ll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further,” Bailey said. He also acknowledged the challenges ahead, stating that the Bank would remain vigilant in adjusting its policies to balance inflation control and economic growth.
The Monetary Policy Committee (MPC), responsible for setting interest rates, was divided on the decision, with two members advocating for a deeper 0.5% cut. The committee’s latest forecasts predict additional rate reductions in the future, though the pace and scale of these cuts remain uncertain.
In addition to the rate cut, the Bank’s outlook on economic growth has been revised downward. The UK is expected to narrowly avoid a formal recession, but productivity remains weak, and inflationary pressures could resurface, especially in the second half of 2025. The Bank has also dismissed the UK government’s recent economic growth plans, stating they would have little to no impact on the country’s GDP growth in the short term.
For consumers, the rate cut will likely provide some relief, especially for borrowers. Mortgage and loan rates are expected to decrease, making homeownership and personal loans more affordable. However, savers may face lower returns on their deposits as the central bank’s easing policy continues.
Savers are urged to act quickly, with savings expert Anna Bowes advising them to explore better account options before rates fall further. “You could get four times the return if you switch to a better account,” Bowes stated.
While the Bank of England’s actions provide a glimpse of hope for borrowers, economic challenges persist, and the Bank remains cautious in its approach to further easing, aware of global uncertainties and inflationary risks. As the UK economy navigates these turbulent times, the Bank of England’s decision underscores the delicate balancing act of supporting growth while keeping inflation in check.
