The Bank of England has cut interest rates from 4.75% to 4.5%, their lowest level since June 2023.
Bank of England governor Andrew Bailey held a press conference after the Monetary Policy Committee (MPC) voted to cut interest rates, while also halving its growth forecast for 2025.
All nine members of the Monetary Policy Committee voted for a rate cut, while two members Catherine Mann and Swati Dhingra – pushed for a deeper rate cut of 0.5 percentage points to 4.25%, warning that the economy appeared to be slowing more rapidly than anticipated.
Officials cautioned that Rachel Reeves’s record tax hike was increasingly weighing on the economy, which is now expected to narrowly avoid recession.
It is the third cut since August 2024, but the Bank said it will be cautious about making further reductions.
It also issued a warning for the year ahead, slashing its 2025 growth forecast from 1.5% to 0.75% and cautioning that inflation could climb to a new peak of 3.7% by autumn — nearly double the government’s 2% target.
Interest rates affect the mortgage, credit card and savings rates for millions of people.
Mr Bailey said: “It will be welcome news to many that we have been able to cut interest rates again today. We’ll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further.”
Hamish Martin, partner at LAVA Advisory Partners, said: “The movement of the Bank of England’s base rate typically has an impact on the M&A market, with today’s cut potentially resulting in an uptick in activity. Lower borrowing costs make debt financing more attractive, encouraging both trade buyers and private equity firms to pursue acquisitions that might previously have been out of reach due to higher cost of capital.
“The cut could also have an impact on valuations, as lower rates enhance the present value of future cash flows, making many targets more appealing. However, while this move has the potential to support deal-making, it’s not a fix-all – broader economic conditions, investor confidence, and geopolitical factors will still play a critical role in shaping the market’s momentum over the coming months.”
Muniya Barua, deputy chief executive at BusinessLDN, said: “Another interest rate cut will provide some solace to firms which are struggling to keep on top of the rising cost of doing business.
“With a sizeable employer national insurance hike now only two months away, however, it’s vital that the current spending review delivers the funding needed to match the Chancellor’s warm words on growth last week.”
