Bank of England cuts interest rates to 4.25%

The Bank of England (BoE) announced a quarter-point interest rate cut today, reducing the base rate from 4.5% to 4.25%, in a widely anticipated move aimed at stimulating the UK’s stalling economy. The decision, made at the Monetary Policy Committee (MPC) meeting, reflects growing concerns over the economic fallout from US President Donald Trump’s recent tariff policies and a domestic growth outlook described as “challenging” by economists.

Governor Andrew Bailey, speaking at a press conference following the announcement, emphasized the need to support economic activity amid global trade disruptions. “The UK economy faces a growth shock as a result of recent US tariff announcements,” Bailey said, referencing the International Monetary Fund’s downgrade of the UK’s 2025 growth forecast to 1.1%, down from 1.6% earlier this year. The BoE’s move aligns with market expectations, with a May rate cut considered a “done deal” by analysts, though some economists argue for further reductions to counter the anticipated economic headwinds.

The rate cut comes as UK inflation fell to 2.6% in March, below expectations, while labor market data indicates cooling hiring intentions amid higher taxes and subdued consumer confidence. Economists suggest that Trump’s tariffs could paradoxically reduce inflation in the UK by redirecting US-bound exports to domestic and EU markets, creating a glut of goods and dampening price pressures. However, this could further sap economic activity, prompting the BoE to signal a less cautious approach to future rate cuts.

The decision coincides with positive developments in UK trade policy, as Prime Minister Sir Keir Starmer hailed a prospective US-UK trade deal as a step toward “security and renewal” for British workers, businesses, and families. Posts on X reflected optimism, with some analysts noting that the trade deal, alongside a recent UK-India agreement, counters fears of de-globalization and positions the UK favorably despite its post-Brexit challenges.

However, domestic economic sentiment remains mixed. The National Institute of Economic and Social Research (NIESR) warned that the government is on track to miss its fiscal rules, increasing the likelihood of tax hikes in the upcoming Autumn Budget. This follows a turbulent period for Chancellor Rachel Reeves, who has faced criticism over rising government borrowing costs and a falling pound, which hit a 14-month low against the dollar earlier this year.

On the political front, the rate cut has sparked debate. Labour leaders, including Energy Secretary Ed Miliband, have defended their green energy policies, which they claim will reduce energy bills by £300 annually by 2029. However, miscommunications have led to public skepticism, with some interpreting this as a promise for immediate relief in 2025, which has not materialized. Meanwhile, Conservative leader Kemi Badenoch faces internal party unrest, with senior Tories plotting to oust her following devastating local election losses to Reform UK, which won 677 council seats and two mayoralties earlier this month.

Reform UK’s rise, led by Nigel Farage, continues to reshape the political landscape, with polling guru Sir John Curtice declaring the end of Britain’s traditional two-party system. The party’s anti-immigration stance and promises to cut spending have resonated with Brexit voters, posing challenges for both Labour and the Conservatives ahead of next year’s elections.