Bank of England cuts interest rates to 4.5% and lowers growth forecasts

 

In its latest monetary policy move, the Bank of England has reduced the base interest rate from 4.75% to 4.5%, marking the third reduction in less than a year.

The Monetary Policy Committee (MPC) voted for this quarter-point cut following earlier reductions in August and November of last year, bringing the rate to its lowest level since June 2023.

This decision arrives amidst a backdrop of revised economic forecasts by the Bank, which now paints a grimmer picture of the UK’s short-term economic growth.

According to the latest data, the economic outlook has weakened, prompting the MPC to continue its trend of easing borrowing costs in an attempt to stimulate spending and investment.

The rate cut, however, is not without its complexities. While lower interest rates generally encourage borrowing and spending, they can also lead to lower returns for savers and potentially fuel inflation if not managed carefully.

The MPC’s decision reflects a delicate balance between fostering economic growth and controlling inflationary pressures, which have been a persistent concern.

The Bank has also adjusted its growth forecasts downwards, attributing the sluggish growth to a combination of factors including higher global energy costs and ongoing adjustments post-pandemic.

These factors are expected to temporarily push up headline CPI inflation, which the Bank projects will peak at around 3.7% in the third quarter of 2025 before it begins to decline towards the target rate.

Jenny Ross, Editor of Which? Money, said: “Though the decision to cut interest rates again will offer some small relief to those remortgaging or buying, mortgage rates are unlikely to fall dramatically in light of the announcement.

“As a result, many households may still be concerned about meeting their repayments.

“Anyone worried about managing their payments should speak to their mortgage lender, which is obliged to help.”

“Lenders may be able to suggest alternative payment options, such as a temporary payment holiday or only paying the interest on repayments.”

“Savers should also review their accounts, as it’s likely banks will be quick to slash the rates on instant-access products.”

“Be sure to shop around for the best rates to ensure your money is working as hard for you as possible – our research has found that digital banks and building societies have consistently outperformed traditional high street banks’ rates, so remaining loyal to one provider could be a costly mistake.”

TUC General Secretary Paul Nowak said:

“This rate cut is badly needed to help lift the economy out of stagnation. The Bank must now keep moving with further cuts to support households and businesses in the months ahead.”

“Lower borrowing costs will ease pressures on households, helping families with their weekly budgets and leaving them with more to spend. And it will make it more affordable for businesses to invest and grow.”