Bank of England policymakers have cut interest rates by a quarter point to 4.25% to cushion the UK economy against the impact of rising economic uncertainty.
The widely expected move from the Bank’s monetary policy committee (MPC), its fourth cut since last August, also carried a warning that the UK economy would slow by a further 0.3% over the next three years in addition to dramatic cuts to its forecasts made earlier this year.
In a blow to the chancellor, Rachel Reeves, the MPC said a combination of uncertainty surrounding the impact of US trade policy on the global economy and clouds hanging over the outlook for the UK meant growth would be almost stagnant for the rest of the year.
Making its announcement ahead of a trade deal between Keir Starmer and Donald Trump, the Bank said economic growth “is judged to have slowed and is expected to remain subdued in the near term”.
In a split vote, with two of the nine-member MPC voting for a bigger 0.5 percentage point cut and two voting to hold at the current 4.5% level, the Bank signalled a high degree of caution about the number of interest rate cuts over the rest of the year.
Financial markets expect at least two further quarter-point cuts in borrowing costs this year.
However, concern that inflation will persist above a 2% target into 2026 led the National Institute of Economic and Social Research to forecast this week that the Bank would be limited to just one more cut in 2025.
The Bank’s governor, Andrew Bailey, said: “Inflationary pressures have continued to ease so we have been able to cut rates again today. The past few weeks have shown how unpredictable the global economy can be.
“That’s why we need to stick to a gradual and careful approach to further rate cuts. Ensuring low and stable inflation is our top priority.”
The Bank said its latest quarterly forecasts were based on the current tariff situation and did not take account of the proposed deal between government ministers and the White House, which was confirmed hours later.
Details of the deal showed the UK had reduced a 27.5% charge on exports of cars and a 25% one on steel and aluminium, in exchange for concessions in some sectors including agriculture.
However, the chancellor has made clear that regardless of any carve-out, the country will still be affected by the global slowdown expected to result from the trade war.
Bailey said he welcomed the prospect of a deal, describing it as “good news all around, including for the UK economy”.
He added that it was “excellent that the UK is leading the way”, before offering his congratulations to those involved on both sides.
