The Bank of England has cut interest rates from 4.75% to 4.5%
It is the lowest base rate since June 2023 after the Bank’s Monetary Policy Committee voted 7-2 in favour of the cut two members wanted a bigger cut, to 4.25%
At the same time the Bank has cut its forecast for growth in the UK economy in 2025 from 1.5% to 0.75%
Matthew Allen, Lecturer in Economics and macroeconomic expert at the University of Salford, comments:
“Although it has been widely anticipated that interest rates would be cut, the timing of such a decision remains uncertain due to external economic pressures, particularly the unpredictability surrounding trade policy.
The recent imposition of tariffs by President Trump in Canada, Mexico and China has heightened concerns, the threat to the EU and it remains unclear whether the UK will also be subject to such measures. Any tariffs imposed on UK exports could aggravate existing economic fragilities, adding further strain to businesses already wrestling with rising costs and consumer pockets.
“Domestically, economic conditions in the UK have been stagnating. Growth is slowing, unemployment is rising, and consumer and business confidence remains weak. A key factor behind this decline is the sharp increase in employer National Insurance Contributions (NICs) and the substantial rise in the National Living Wage, as announced in the Autumn Budget. While these measures aim to support UK workers and public finances, they have also increased operating costs for businesses, leading to concerns about job losses, reduced investment, and higher prices.
“The potential for further inflationary pressures complicates the Bank of England’s decision on interest rates. Whilst the rate cut could provide some relief by easing borrowing costs for businesses and households, it also carries the risk of fuelling inflation if price pressures persist. If tariffs are imposed on UK goods, the increased cost of imports could further drive-up prices, making the cost-of-living crisis worse for the British people.
“Ultimately, whilst the interest rate cut may be good news for some in terms of lower borrowing costs, its effectiveness will depend on wider economic conditions, including trade policy decisions and fiscal measures already in place. The uncertainty surrounding US tariffs, coupled with domestic cost pressures, presents a complex challenge for policymakers, and a cautious approach will likely be required in the months ahead.”
