BoE cuts interest rates to 4.25%

The Bank of England (BoE) has cut interest rates to 4.25%, down from the previous rate of 4.5%, marking the fourth rate cut since last year’s peak of 5.25%.

At its meeting ending on 7 May, the bank’s monetary policy committee (MPC) voted by a majority of 5–4 to reduce the bank rate by 0.25 percentage points. Two members preferred to reduce the rate by 0.5 percentage points, to 4%, while two members preferred to maintain it at 4.5%.

In today’s (May 8) announcement, the bank reiterated there has been “substantial” progress on disinflation over the past two years, as “previous external shocks receded”.

The bank said this progress has allowed the MPC to “withdraw gradually some degree of policy restraint, while maintaining bank rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures”.

It comes as inflation fell more than expected to 2.6% in the 12 months to March 2025, down from the 2.8% rise in February, driven largely by a fall in petrol prices.

According to the ONS, the largest downward contributions came from recreation and culture and motor fuels, with a further large downward effect from housing and household services.

Based on the bank’s view of the medium-term outlook for inflation, it said a “gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate”.

Surrounding global trade, the bank warned that global trade policy uncertainty had “intensified”, with financial market volatility rising globally amid the United States’ tariff announcements and other geopolitical uncertainties.

As such, it said there has subsequently been “volatility” in financial markets, and market-implied policy rates have moved lower with prospects for global growth having weakened as a result. However, the BOE did temper that it is likely the negative impacts on UK growth and inflation are “likely to be smaller”.

The bank voted to hold interest rates at 4.5% in March, having cut the rate in February to its lowest level since June 2023.

It had previously held interest rates at 4.75% in December after inflation rose for the second month in a row to 2.6% in November, marking the highest level of inflation in eight months.

In November, the BoE had also voted to cut interest rates, with rates cut to 4.75%, down from a previous rate of 5%. Rates were cut from their peak of 5.25% to 5% last August.