Having cut UK interest rates twice in 2024, the Bank of England announced its first cut of 2025 at the Monetary Policy Committee’s February meeting.
- The BoE cut its key interest rate to 4.5%
- The central bank halved its growth forecast for this year
- CPI inflation is set to remain above target for longer than previously expected
Having cut UK interest rates twice in 2024, the Bank of England (BoE) announced its first cut of 2025 at the Monetary Policy Committee’s (MPC’s) February meeting. Policymakers voted by seven to two in favour of a cut of 25 basis points, reducing the base rate to 4.5%, although two MPC members voted for a larger reduction of 50 basis points.
“We now expect GDP growth to be notably weaker in the near term” (BoE Governor Andrew Bailey)
UK interest rates are projected to fall more slowly than previously forecast; rising energy prices are expected to push up inflation to 3.7% later this year, and inflation is now expected to remain above its 2% target until the start of 2028. The BoE reported that a growing number of UK businesses regard the October 2024 Budget as “a deterrent to investment”, with respondents citing the impact of business asset relief, inheritance tax and higher employers’ National Insurance contributions.
BoE Governor Andrew Bailey commented: “Activity in the UK economy has been weaker than expected last year. And we now expect GDP growth to be notably weaker in the near term too.” The BoE halved its growth forecast for this year from 1.5% to 0.75% but raised its predictions for both 2026 and 2027 to 1.5% from 1.25%. In response to US President Donald Trump’s imposition of tariffs on goods from Canada, Mexico and China – although levies on Canada and Mexico were subsequently paused – the BoE commented: “Tariffs and other trade barriers would likely have adverse effects on UK activity”.
