The Bank of England lowers interest rates by 25 basis points, in line with expectations
The Bank of England (BOE) reduced its main interest rate by 25 basis points on Thursday, lowering it from 4.50% to 4.25% during its May monetary policy meeting. This decision, widely anticipated by markets, comes as the central bank grapples with concerns over the global economic impact of the recent U.S. trade tariffs announced by President Trump, which have disrupted international markets.
The BOE’s Monetary Policy Committee (MPC) showed a split decision, highlighting the ongoing debate among policymakers:
- Four members voted for a 0.25% rate cut.
- Two members pushed for a larger 0.50% reduction.
- Two members preferred keeping rates unchanged.
The fallout from the U.S. global tariff announcement has already prompted the International Monetary Fund (IMF) to lower its growth forecasts for the UK and most advanced economies, adding pressure on the BOE to maintain a cautious policy stance. This environment has led the BOE to adopt a gradual approach to rate adjustments.
The BOE’s move mirrors that of the U.S. Federal Reserve, which also implemented a 25 basis point rate cut in the past year. However, it remains more conservative than the European Central Bank (ECB), which was forced to act more aggressively due to higher wage growth and persistent inflation exceeding its target.
Looking ahead, the BOE is expected to maintain its cautious tone, favoring a measured approach to monetary policy. Economists forecast that borrowing costs could decline to around 3.50% by year-end, with inflation gradually returning to the 2% target by the first quarter of 2027.
