Bank of England Cuts Interest Rates to 4.5%, Slashes Growth Forecasts

Bank of England Lowers Interest Rates Amid Economic Uncertainty

The Bank of England has reduced its key interest rate to 4.5%, marking a quarter-point reduction amid growing economic concerns. The move, backed by a 7-2 vote among the monetary policy committee members, comes as the UK grapples with slow growth and inflation risks.

Key Reasons Behind the Rate Cut

The rate cut is aimed at providing relief to borrowers as the UK economy faces challenges:

• The UK GDP forecast for 2025 has been downgraded from 1.5% to 0.75%.
• Inflation is projected to reach 3.7% by autumn, nearly double the government’s 2% target.
• Economic activity has slowed significantly, leading to concerns of stagflation – a mix of weak growth and persistent inflation.

Market Reactions and Economic Implications

Financial markets largely expected the cut, pricing in a 97% probability prior to the decision. However, the Bank signaled it may have limited room for further reductions due to ongoing inflationary pressures and global trade uncertainties. Businesses are also facing higher costs, driven in part by rising energy prices.

Challenges Ahead

Despite the cut, the UK economy faces several risks:

• Potential global trade disruptions due to US protectionist policies.
• Increasing costs for businesses due to tax changes and wage hikes.
• Concerns over long-term inflation control, with the 2% target not expected to be met until 2027.

While the interest rate cut may provide short-term relief, businesses and households remain cautious about the economic outlook.