Ƶ interest rates have been cut to 4.5% as the Bank of England's voted to reduce borrowing costs, alongside a cut in short-term growth forecasts for the economy. The Bank’s Monetary Policy Committee (MPC) voted for a quarter-point reduction, mirroring similar cuts in August and November last year, which has brought the base rate to its lowest level since June 2023.
Governor Andrew Bailey said that the cut will be "welcome news to many" but added that the Bank is "monitoring the Ƶ economy and global developments very closely, and taking a gradual and careful approach to reducing rates further".
The Bank has also halved its growth forecast for the Ƶ economy to 0.75% for this year, down from previous estimates of 1.5%, before it is expected to pick up again in 2026 and 2027.
This downgrade comes as a setback to chancellor Rachel Reeves after Labour had said it was prioritising economic growth. It also coincides with indications of rising inflation, with predictions suggesting a higher-than-expected peak of 3.7% later in the summer.
Seven MPC members voted to reduce the base rate from 4.75% to 4.5%. Two members – Swati Dhingra and Catherine Mann – voted for a sharper reduction to 4.25%.
Chancellor Rachel Reeves said: “This interest rate cut is welcome news, helping ease the cost-of-living pressures felt by families across the country and making it easier for businesses to borrow to grow.
“However, I am still not satisfied with the growth rate. Our promise in our Plan for Change is to go further and faster to kickstart economic growth to put more money in working people’s pockets.
“That’s why we are taking on the blockers to get Britain building again, ripping up unnecessary regulatory barriers and investing in our country to rebuild roads, rail and vital infrastructure.”
Shadow chancellor Mel Stride said: “This will be welcome news for many families and businesses who have been hit hard by Labour’s mismanagement. Sadly, their disastrous Budget is likely to mean fewer rate cuts this year than previously anticipated.
“Under new leadership, the Conservatives will back business and our nation of entrepreneurs to create jobs and wealth.
“That is the only way to grow our economy so everyone can have a more secure future.”
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