The Bank of England (BoE) cut its key interest rate by 0.25 percentage points to 4.25% at its latest monetary policy meeting, despite differences of opinion among committee members. The move comes after US President Donald Trump's massive tariff announcements have dented global economic growth and caused market uncertainty.
Of the nine members of the Monetary Policy Committee (MPC), five supported a quarter-point cut, two wanted a larger half-point cut, and two preferred to keep it. BoE Governor Andrew Bailey stressed that a cautious approach was needed as the global economy was currently too uncertain.
The BoE expects US and other tariffs to reduce UK economic growth and contribute to lower inflation. The central bank also said that around two-thirds of the impact on UK economic growth comes from indirect effects on the global economy, rather than direct effects on British exports.
The BoE has also cut its inflation forecast for this year, with a peak of around 3.5%, down from its previous forecast of 3.75%. However, it expects inflation to return to its 2% target by the first quarter of 2027, nine months earlier than previously expected. UK economic growth is expected to pick up slightly to 1% this year but a medium-term slowdown remains a concern.
While the rate cut is seen as a necessary step in the face of global pressures, the BoE has stressed that interest rates are not automatic and must be adjusted to current circumstances. With inflation expected to ease and wage growth starting to slow, the possibility of a faster rate cut in the near future cannot be completely ruled out.
