Bank of England Lowers Interest Rate to 4.5%

The Bank of England has reduced its base interest rate from 4.75% to 4.5%, marking a strategic shift in monetary policy aimed at stimulating economic growth.

The quarter-point cut comes as policymakers respond to sluggish economic performance and persistent inflationary pressures. In a statement published on Thursday, titled “Bank Rate Reduced to 4.5% – February 2025”, the Bank highlighted its cautious approach to further reductions.

Governor Andrew Bailey welcomed the decision, stating:
“It will be welcome news 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.”

Divided Decision and Future Rate Cuts

The Monetary Policy Committee (MPC) voted 7–2 in favor of the cut, with two members advocating for a more aggressive 0.5% reduction. The Bank’s latest forecasts indicate at least two more rate cuts in the coming years, although investors predict a more accelerated easing cycle.

Economic Outlook: Slowing Growth & Inflation Risks

Despite the rate cut, the UK’s economic outlook remains fragile. The Bank revised its growth forecast downward, warning that the country will narrowly avoid a recession. Additionally, it downgraded expectations for the economy’s income-generating capacity, signaling prolonged weakness.

The Bank also dismissed the Chancellor’s recent economic growth plans, stating they would have “no impact on GDP growth in its forecast horizon.”

Inflation, which fell to 2.5% in Q4 2024, is expected to rise temporarily to 3.7% in Q3 2025 due to energy costs before stabilizing.

Impact on Consumers: Borrowers vs. Savers

The decision has mixed implications for consumers.

• Borrowers stand to benefit from lower mortgage and loan rates.
• Savers, however, may face declining returns.

Savings expert Anna Bowes advised:
“Savers should review their accounts and act before rates drop further. You could get four times the return if you switch to a better account.”

Global Uncertainty & UK’s Economic Future

The UK economy faces additional risks from global factors, including potential U.S. trade policies under Donald Trump. While these tariffs have not yet been factored into economic models, they pose a significant threat to future growth.

As the Bank of England adopts a cautious but steady approach to monetary easing, financial markets and households brace for the evolving economic landscape.