Interest rate cut to 4.25% with more falls expected

Easing inflation allowed the Bank of England to reduce the rate by 0.25% in a timely boost to business and homeowners

- KARL MATCHETT

The Bank of England slashed interest rates to 4.25 per cent yesterday but warned that Donald Trump’s global tariff war will hurt economic growth over the next three years in the UK.

The central bank cut the UK’s base rate by 0.25 per cent following a slowdown in inflation in recent months. Following cuts in February and now May, the base rate is down from a high of 5.25 per cent to a level last seen in May 2023.

Andrew Bailey, governor of the Bank of England, said: “Inflationary pressures have continued to ease, so we’ve been able to cut rates again today.” The Bank predicted that the UK economy will grow by 1 per cent this year, upgrading its previous 0.75 per cent forecast on the back of a strong start to 2025.

However, it added that recently announced US tariff plans by President Trump will dent UK growth by 0.3 percentage points over the next three years, as it downgraded its 2026 forecast. Most of this downward impact is to come from “lower US demand for UK exports” and weaker global activity, according to the Bank’s latest report.

Chancellor Rachel Reeves said the cut in interest rates could make a “significant” difference to household finances. She told reporters: “It’s very good news that we’ve had four interest rate cuts now in the last 10 months, and for someone on a variable rate mortgage, that can mean around £100 a month off mortgage payments. So that is significant.