Bank of England Cuts Interest Rates, Lowers Growth Forecast

Bank of England Lowers Interest Rates Amid Growth Concerns

The Bank of England has announced a cut in interest rates to 4.5%, down from 4.75%, marking the lowest level in over 18 months. This decision comes alongside a significant revision of its economic growth forecast for 2025 from 1.5% to 0.75%.

Economic Forecast and Government Response

The UK government has prioritized economic growth, with Prime Minister Sir Keir Starmer stating that the downward revision in projections serves as motivation for further action. The Bank has also upgraded its growth expectations for 2026 and 2027, now forecasting a 1.5% increase in GDP for both years.

Inflation and Business Impact

Despite the rate cuts, inflation remains a concern, with expectations of a rise to 3.7% due to increasing energy and water bills. Businesses have expressed concerns over higher employment costs, particularly following the increase in employers’ National Insurance contributions.

Effects on Consumers and Mortgages

The interest rate cut is expected to benefit homeowners with variable-rate mortgages, with an estimated £29 reduction in monthly payments for those on tracker deals. However, savers may see lower returns, potentially impacting those reliant on interest income.

Future Outlook and Challenges

The uncertain economic landscape, potential US trade tariffs, and inflationary pressures could pose further challenges for the UK economy. Analysts caution that the extent and pace of future rate cuts will depend on how inflation trends evolve in the coming months.