Slower inflation helped to drive the Monetary Policy Committee’s decision to cut UK interest rates by 25 basis points at its May meeting.
- The BoE cut its key base rate to 4.25%
- The MPC vote was split by five to four
- Inflationary pressures are set to rise in the short term
Slower inflation helped to drive the Monetary Policy Committee’s (MPC’s) decision to cut UK rates by 25 basis points at its May meeting. The nine-strong members of the Bank of England’s (BoE’s) interest-rate-setting committee proved to be unexpectedly divided, voting by five to four in favour of the cut to 4.25%; two members voted for a cut of 50 basis points, while another two voted for no change. The widely expected quarter-point reduction was the second cut of 2025 following a reduction of 25 basis points2 in February. The BoE’s key base rate is now at its lowest level for two years.
“Uncertainties relating to global trade have risen”
The UK’s annualised rate of inflation eased to 2.6% in March compared with February’s rate of 2.8%; however, short-term inflationary pressures are set to pick up following April’s rise in the National Living Wage and employer National Insurance Contributions, and higher oil and gas prices for consumers. During April, the International Monetary Fund raised its 2025 UK inflation forecast by 0.7 percentage points to 3.1%, highlighting the impact of one-off regulated price changes.
In its statement, the MPC said that uncertainties relating to global trade have risen since the US announced sweeping trade tariffs in early April, warning that President Trump’s trade policy had created “a new source of risk for the global economy”. Policymakers believe it has weakened the outlook for global growth, although the negative impact on UK growth and inflation is likely to prove smaller.
