The Bank of England has cut its base interest rate from 4.75 per cent to 4.5 per cent, marking a shift in monetary policy as it seeks to support economic growth.
The move, a quarter percentage point reduction, comes amid concerns over sluggish economic performance and inflationary pressures.
This is detailed in a Thursday publication on the Bank’s website, titled, “Bank Rate reduced to 4.5% – February 2025.”
Governor Andrew Bailey stated: “It will be welcome news that we have been able to cut interest rates again today.
“We’ll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further.”
The Bank’s Monetary Policy Committee was divided on the decision, with two members advocating for a steeper 0.5% cut, suggesting that further reductions could be imminent.
The bank’s latest forecasts predict at least two more rate cuts over the next few years, though investors anticipate an even more aggressive easing cycle.
However, the economic outlook remains fragile.
The Bank revised its growth forecast downward, warning that the UK will narrowly avoid a formal recession.
It also downgraded its estimate of the economy’s ability to generate income, signaling prolonged economic weakness.
In a further setback for the government, the Bank dismissed the Chancellor’s latest economic growth plans, stating they would have “no impact on GDP growth in its forecast horizon.”
The decision will have mixed consequences for consumers.
Borrowers will benefit from lower mortgage and loan costs, but savers could see declining returns.
Savings expert Anna Bowes advised: “Savers should review their accounts and act before rates drop further.
“You could get four times the return if you switch to a better account.”
Meanwhile, the Monetary Policy Committee sets policy to maintain 2% inflation while supporting growth and jobs.
On February 5, 2025, the MPC voted 7–2 to cut the Bank Rate to 4.5%, with two members favoring a deeper cut to 4.25%.
Inflation fell to 2.5% in Q4 2024 but is expected to temporarily rise to 3.7% in Q3 2025 due to energy costs before stabilising.
GDP growth has weakened, confidence has declined, and productivity remains sluggish.
The MPC is cautiously easing policy while monitoring inflation risks.
Global uncertainties also loom over the UK economy, with the Bank highlighting potential risks from U.S. trade policies under Donald Trump.
While these tariffs have not yet been factored into economic models, they pose a significant threat to future growth.
Multiple financial experts noted that as the Bank of England signals a cautious but steady approach to further rate cuts, markets and households brace for an evolving economic landscape.
