Bank of England lowers its key interest rate to 4%, marking the lowest rate since the beginning of 2023
Bank of England Lowers Interest Rate to Boost U.K. Economy
The Bank of England (BoE) has made a significant move to support the sluggish U.K. economy by lowering its main interest rate to 4%. This is the fifth reduction since last August and the decision was widely anticipated in financial markets.
The BoE's Monetary Policy Committee (MPC) made the decision to lower the interest rate while balancing the responsibility to control inflation against concerns about slow economic growth. Despite consumer prices rising 3.6% in the 12 months through June, significantly above the bank's 2% target, the MPC sees the recent rise in consumer prices as a temporary spike, due in part to high energy costs.
The interest rate cut is intended to bolster the U.K. economy by reducing borrowing costs for consumers and businesses, encouraging spending and investment. This can help counteract the stagnating economic growth indicated recently. However, the MPC’s rate reduction reflects confidence that wage pressures are moderating and inflation can still be steered sustainably back to target without raising rates further.
The committee's decision was not unanimous, with a narrow 5-4 vote margin. This suggests a divided view on easing, indicating the Bank is proceeding carefully to avoid igniting new inflationary pressures.
The U.K. economy grew 0.7% in the first three months of 2025 after stagnating in the second half of last year. Despite this growth, the government may be forced to raise taxes later this year due to sluggish economic growth, rising borrowing costs, and pressure to increase spending.
Rising taxes and U.S. President Donald Trump's global trade war were factors considered in the decision. With existing global challenges such as US tariffs affecting UK trade, lower rates may alleviate some pressure by supporting domestic demand, although external risks remain significant.
The latest rate cut aims to balance the need to stimulate economic activity amid weak growth and easing inflationary pressures. This can support consumer and business confidence by lowering borrowing costs, but confidence may remain cautious given persistent inflation above target and external uncertainties impacting the UK economy.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, stated that there will be hopes that cheaper loans will help boost consumer and business confidence. However, the previous tax increases and uncertainty about the global economy are weighing on employers.
The BoE's main interest rate is now at the lowest level since March 2023. The bank expects inflation to fall back to the target of 2% next year.
- The Bank of England's decision to lower the interest rate from 4% to its current lowest level since March 2023 is aimed at reducing borrowing costs for both consumers and businesses within the U.K. economy.
- In an attempt to counteract the stagnating economic growth and slowdown in consumer confidence, the BoE has implemented a series of interest rate cuts, with this latest reduction targeting the needs of various businesses within the economy.
