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| UK interest rates fall to 4.25% as Bank of England announces a quarter-point cut | UK interest rates fall to 4.25% as Bank of England announces a quarter-point cut |
| (about 2 hours later) | |
| Move follows run of downbeat economic data and looks to cushion UK from Trump’s trade war fallout | Move follows run of downbeat economic data and looks to cushion UK from Trump’s trade war fallout |
| Bank of England policymakers have cut interest rates by a quarter point to 4.25% to cushion the UK economy against the impact of Donald Trump’s trade war. | Bank of England policymakers have cut interest rates by a quarter point to 4.25% to cushion the UK economy against the impact of Donald Trump’s trade war. |
| The widely expected move from the Bank’s monetary policy committee (MPC), its fourth cut since last August, also carried a warning that the UK economy would slow by a further 0.3% over the next two years in addition to dramatic cuts to its forecasts earlier this year. | The widely expected move from the Bank’s monetary policy committee (MPC), its fourth cut since last August, also carried a warning that the UK economy would slow by a further 0.3% over the next two years in addition to dramatic cuts to its forecasts earlier this year. |
| In a blow to the chancellor, Rachel Reeves, the MPC said a combination of uncertainty surrounding the impact of US trade policy and clouds hanging over the UK economy meant economic growth would be almost stagnant for the rest of the year. | In a blow to the chancellor, Rachel Reeves, the MPC said a combination of uncertainty surrounding the impact of US trade policy and clouds hanging over the UK economy meant economic growth would be almost stagnant for the rest of the year. |
| Economic growth “is judged to have slowed and is expected to remain subdued in the near term”, the Bank said. | Economic growth “is judged to have slowed and is expected to remain subdued in the near term”, the Bank said. |
| In a split vote, with two of the nine-member MPC voting for a bigger 0.5 percentage point cut and two voting to keep rates held at 4.5%, the Bank signalled a high degree of caution about the number of interest rate cuts over the rest of the year. | In a split vote, with two of the nine-member MPC voting for a bigger 0.5 percentage point cut and two voting to keep rates held at 4.5%, the Bank signalled a high degree of caution about the number of interest rate cuts over the rest of the year. |
| Before the rates announcement, financial markets expected at least two further quarter-point cuts in borrowing costs this year. | Before the rates announcement, financial markets expected at least two further quarter-point cuts in borrowing costs this year. |
| However, concern that inflation will persist above a 2% target into 2026 led the National Institute of Economic and Social Research to say this week that the Bank would be limited to just one cut this year. | However, concern that inflation will persist above a 2% target into 2026 led the National Institute of Economic and Social Research to say this week that the Bank would be limited to just one cut this year. |
| The Bank’s governor, Andrew Bailey, said: “Inflationary pressures have continued to ease so we have been able to cut rates again today. The past few weeks have shown how unpredictable the global economy can be. | The Bank’s governor, Andrew Bailey, said: “Inflationary pressures have continued to ease so we have been able to cut rates again today. The past few weeks have shown how unpredictable the global economy can be. |
| “That’s why we need to stick to a gradual and careful approach to further rate cuts. Ensuring low and stable inflation is our top priority.” | “That’s why we need to stick to a gradual and careful approach to further rate cuts. Ensuring low and stable inflation is our top priority.” |
| The Bank said its latest quarterly forecasts were based on the current tariff situation and did not take account of a proposed deal between government ministers and the White House, expected to be announced on Thursday. | The Bank said its latest quarterly forecasts were based on the current tariff situation and did not take account of a proposed deal between government ministers and the White House, expected to be announced on Thursday. |
| The UK is in negotiations with Washington about potentially winning an exemption from the 25% import charges that Trump has imposed on foreign cars and steel, in exchange for concessions. | The UK is in negotiations with Washington about potentially winning an exemption from the 25% import charges that Trump has imposed on foreign cars and steel, in exchange for concessions. |
| But the chancellor has made clear that even if the UK secures a carve-out, the country would still be affected by the global slowdown expected to result from the trade war. | But the chancellor has made clear that even if the UK secures a carve-out, the country would still be affected by the global slowdown expected to result from the trade war. |
| As well as monitoring the impact of trade policy, the Bank’s rate-setters said Reeves’s £25bn increase in employer national insurance contributions, which came into force last month, would affect employment, wages and prices, though it remained unclear to what extent. | As well as monitoring the impact of trade policy, the Bank’s rate-setters said Reeves’s £25bn increase in employer national insurance contributions, which came into force last month, would affect employment, wages and prices, though it remained unclear to what extent. |
| MPC members were more concerned that a spike in inflation this year, largely due to higher council tax and utility bills, would provoke a disproportionate response from consumers already battered by a long period of rising prices. | MPC members were more concerned that a spike in inflation this year, largely due to higher council tax and utility bills, would provoke a disproportionate response from consumers already battered by a long period of rising prices. |
| Inflation is expected to peak in the third quarter at an average 3.5%, down from previous forecasts of 3.7%, largely in response to cheaper goods being redirected to the UK from China and other countries hit by US tariffs. | Inflation is expected to peak in the third quarter at an average 3.5%, down from previous forecasts of 3.7%, largely in response to cheaper goods being redirected to the UK from China and other countries hit by US tariffs. |
| “World export prices are expected to be materially weaker, particularly in China,” the Bank said, adding: “The current overall impact of trade developments on the UK is therefore likely to be disinflationary than inflationary.” | “World export prices are expected to be materially weaker, particularly in China,” the Bank said, adding: “The current overall impact of trade developments on the UK is therefore likely to be disinflationary than inflationary.” |
| Despite the lower peak in inflation, households could fear a more persistent rise in prices and focus their spending on essential items, limiting the amount of disposable income spent on big-ticket goods, depressing the economy further. | Despite the lower peak in inflation, households could fear a more persistent rise in prices and focus their spending on essential items, limiting the amount of disposable income spent on big-ticket goods, depressing the economy further. |
| Inflation is not expected to ease to the MPC’s 2% target until spring 2027. | Inflation is not expected to ease to the MPC’s 2% target until spring 2027. |
| The Bank’s outlook comes after a run of downbeat data on the UK economy, with surveys suggesting consumer and business confidence is weakening. | |
| The Bank said the result would be “subdued” growth in business investment, which is likely to put a brake on hoped-for increases in the UK’s productivity. | The Bank said the result would be “subdued” growth in business investment, which is likely to put a brake on hoped-for increases in the UK’s productivity. |