Bank of England Cuts Interest Rates to Lowest Level in over Two Years

The Bank of England (BoE) on Thursday cut its benchmark interest rate by 25 basis points, bringing it down to 4.00%, the lowest level since early 2023.

The decision comes amid growing concerns over a sluggish British economy, persistently elevated inflation, and rising global trade tensions.

The Monetary Policy Committee (MPC) voted 5 to 4 in favor of the cut, signaling a divided outlook among policymakers as they attempt to balance efforts to rein in inflation with the urgent need to support domestic growth.

“While the direct impact of U.S. tariffs has been milder than initially feared, the broader uncertainty surrounding trade policy continues to weigh heavily on sentiment,” the BoE said in its policy statement.

This marks the fifth rate cut since the BoE began its easing cycle in August 2024, reflecting a strategic shift from combating inflation to stimulating demand in the face of weaker-than-expected economic performance.

While the central bank has long targeted a 2.0% inflation rate, the latest official data showed inflation climbing unexpectedly to 3.6% in June, an 18-month high, complicating the BoE’s decision-making process.

Despite the inflation uptick, policymakers expressed confidence that the current trajectory of inflation will ease over time, justifying a continued accommodative stance, albeit with greater caution.

“Interest rates remain on a downward path, but any future reductions must proceed gradually and prudently,” said BoE Governor Andrew Bailey during a post-decision press briefing.

The BoE’s move follows months of economic turbulence triggered in part by U.S. President Donald Trump’s global tariff campaign, which has contributed to mounting uncertainty in global markets.

Although a May trade agreement between London and Washington rolled back more than 10% in tariffs on U.K.-manufactured goods, particularly automobiles, business investment remains subdued, and consumer confidence is fragile.

The Bank said the improved trade terms had softened immediate downside risks but warned that geopolitical unpredictability and domestic tax burdens continue to cast a shadow on long-term growth prospects.

Despite the headwinds, the Bank of England revised its GDP growth forecast for 2025 upward to 1.25%, from a previous estimate of 1.0%, suggesting a slightly improved outlook but still well below pre-pandemic norms.