UK interest rates lowered to 4.25% in second cut this year

The Bank of England has cut interest rates to 4.25%, following a split vote among policymakers.

It is the first time the Bank’s Monetary Policy Committee (MPC) has met to decide monetary policy since US President Donald Trump’s “liberation day” tariff announcements last month.

The decision, along with quarterly economic forecasts, was delayed by two minutes to honour the silence to mark the 80th anniversary of VE Day – meaning it was published at 12.02pm, rather than noon.

Some economists have warned that UK economic growth could slow sharply over the next two years because of Trump’s plans, which will directly impact British exporters, but could also weaken spending among households and businesses.

The Bank’s nine-person MPC voted by a majority of five-four to reduce rates by 0.25 percentage points, bringing it down to the lowest level since May 2023.

Two members of the MPC, Swati Dhingra and Alan Taylor, wanted to push through a bigger 0.5 percentage point reduction to interest rates.

Another two members, Catherine L Mann and Huw Pill, preferred to keep rates unchanged at 4.5%.

The committee stressed that it remains “sensitive to heightened unpredictability in the economic environment” and that a “gradual and careful approach” to cutting rates was appropriate.

UK economic growth is expected to be stronger than previously thought this year, but weaker over 2026 as the impact of tariffs on global trade takes its toll, according to new forecasts from the Bank of England.

The projections show gross domestic product (GDP) will average at 1% this year, marking an upgrade from the 0.75% growth predicted in the Bank’s last report in February.

This is largely due to growth over the first three months of 2025 being higher than the Bank had previously anticipated.

But the forecast for 2026 has been downgraded to 1.25%, from 1.5% previously.

The Bank also cut its growth outlook for the world economy to 1.5% in 2026, from 2% previously, as new US tariffs and heightened uncertainty over global trade weigh on economic activity around the world.