The Bank of England's (BoE) Monetary Policy Committee (MPC) has voted to lower the benchmark bank rate by 0.25 percentage points to 4.25 per cent, marking a cautious step towards easing policy amid ongoing progress on disinflation.
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This decision, announced on May 08, was passed by a narrow majority of 5-4. While two members advocated for a more significant 0.5 percentage point cut to 4 per cent, and two others argued to keep the rate unchanged at 4.5 per cent.&nbsp;
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The cut had been widely expected, especially after a slowdown in price rises, with inflation cooling to 2.6 per cent in the twelve months to March (from 2.8 per cent in February), as energy prices have retreated and the restrictive monetary stance has helped contain second-round inflationary effects.
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Despite the recent decline in inflation, the MPC remains cautious, stating that interest rates will need to stay in restrictive territory to guard against any persistent inflation pressures. The committee noted that inflationary risks could still shift in either direction, with global trade uncertainties and tariff-related volatility contributing to market fluctuations.
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&ldquo;We expect an increase in inflation this year. It is likely to rise temporarily to 3.7 per cent, partly because of higher energy prices. Inflation is expected to fall back to the 2 per cent target after that&hellip;There is also a lot of uncertainty from global developments, partly because of changes in global trade policies. We are assessing what this could mean for UK inflation closely,&rdquo; said BoE Governor Andrew Bailey.
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&ldquo;We need to be confident that inflation will remain low and stable in a lasting way. We will decide carefully how much further and how fast we can cut interest rates,&rdquo; he added.
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<h2>UK economy's health check</h2>
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The UK economy has shown signs of slowing growth, with GDP growth decelerating since mid-2024 and the labour market loosening. Wage growth, though still elevated, is expected to decline sharply later in the year. Energy prices have fallen, but increases earlier in the year are still expected to push inflation back up to 3.5 per cent by the third quarter of 2025 before easing once more.
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The underlying GDP growth is expected to have been around zero in 2025 Q1, well below the central bank&rsquo;s projection for headline growth of 0.6 per cent. The S&amp;P Global UK composite output PMI declined significantly in April, suggesting downside risks around the near-term outlook. Household spending growth has remained subdued over recent quarters, although real incomes have risen quite strongly such that the saving ratio increased to 11.6 per cent in 2024 Q4, its highest level since the pandemic.
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The country&rsquo;s employment growth has also softened recently, and the labour market has continued to loosen. The ratio of vacancies to unemployment has fallen further and is now judged to be below its equilibrium level.
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The central bank's May Report sets out two illustrative scenarios. In one scenario, there could be weaker supply and more persistence in domestic wages and prices, including from second-round effects related to the near-term increase in CPI inflation. In another scenario, inflationary pressures could ease more quickly owing to greater or longer-lasting weakness in demand relative to supply, in part reflecting uncertainties globally and domestically.
&nbsp;
The committee emphasised that monetary policy is not on a preset path and will be responsive to changes in the economic landscape.
&nbsp;
The future decisions on interest rates will depend on how inflation and the economy evolve, with the goal of returning inflation to the 2 per cent target in the medium term, the committee said in a statement.
&nbsp;
<h2>Who will it help?</h2>
&nbsp;
The Bank of England&rsquo;s recent 25-basis-point interest rate cut is set to benefit homeowners, particularly those looking to buy or remortgage. With a significant portion of UK homeowners on fixed-rate mortgages, the rate reduction is beneficial for those whose fixed-rate terms are ending in 2025, as it could lead to cheaper mortgage deals. While the cut won&rsquo;t impact those with existing fixed-rate mortgages, experts say it may help stimulate the housing market by improving affordability and providing lenders with room to compete, particularly among first-time buyers.
&nbsp;
In addition to this, the rate cut is also expected to benefit consumers and businesses. Borrowers with credit cards and personal loans may see lower interest rates, depending on their credit history. For businesses, particularly small and medium-sized enterprises, lower rates could make borrowing cheaper, providing relief after recent cost increases like the national minimum wage hike. With reduced borrowing costs, firms may have more cash for investment, potentially boosting consumer confidence and spending, helping the UK economy recover.

Business & Economy: Despite the recent decline in inflation, the MPC remains cautious, stating that interest rates will need to stay in restrictive territory

The Bank of England's (BoE) Monetary Policy Committee (MPC) has voted to lower the benchmark bank rate by 0.25 percentage points to 4.25 per cent, marking a cautious step towards easing policy amid ongoing progress on disinflation. This decision, announced on May 08, was passed by a narrow majority of 5-4. While two members advocated for a more significant 0.5 percentage point cut to 4 per cent, and two others argued to keep the rate unchanged at 4.5 per cent. The cut had been widely expected, especially after a slowdown in price rises, with inflation cooling to 2.6 per cent in the twelve months to March (from 2.8 per cent in February), as energy prices have retreated and the restrictive monetary stance has helped contain second-round inflationary effects. Despite the recent decline in inflation, the MPC remains cautious, stating that interest rates will need to stay in restrictive territory to guard against any persistent inflation pressures. The committee noted that inflationary risks could still shift in either direction, with global trade uncertainties and tariff-related volatility contributing to market fluctuations. “We expect an increase in inflation this year. It is likely to rise temporarily to 3.7 per cent, partly because of higher energy prices. Inflation is expected to fall back to the 2 per cent target after that…There is also a lot of uncertainty from global developments, partly because of changes in global trade policies. We are assessing what this could mean for UK inflation closely,” said BoE Governor Andrew Bailey. “We need to be confident that inflation will remain low and stable in a lasting way. We will decide carefully how much further and how fast we can cut interest rates,” he added. UK economy's health check The UK economy has shown signs of slowing growth, with GDP growth decelerating since mid-2024 and the labour market loosening. Wage growth, though still elevated, is expected to decline sharply later in the year. Energy prices have fallen, but increases earlier in the year are still expected to push inflation back up to 3.5 per cent by the third quarter of 2025 before easing once more. The underlying GDP growth is expected to have been around zero in 2025 Q1, well below the central bank’s projection for headline growth of 0.6 per cent. The S&P Global UK composite output PMI declined significantly in April, suggesting downside risks around the near-term outlook. Household spending growth has remained subdued over recent quarters, although real incomes have risen quite strongly such that the saving ratio increased to 11.6 per cent in 2024 Q4, its highest level since the pandemic. The country’s employment growth has also softened recently, and the labour market has continued to loosen. The ratio of vacancies to unemployment has fallen further and is now judged to be below its equilibrium level. The central bank's May Report sets out two illustrative scenarios. In one scenario, there could be weaker supply and more persistence in domestic wages and prices, including from second-round effects related to the near-term increase in CPI inflation. In another scenario, inflationary pressures could ease more quickly owing to greater or longer-lasting weakness in demand relative to supply, in part reflecting uncertainties globally and domestically. The committee emphasised that monetary policy is not on a preset path and will be responsive to changes in the economic landscape. The future decisions on interest rates will depend on how inflation and the economy evolve, with the goal of returning inflation to the 2 per cent target in the medium term, the committee said in a statement. Who will it help? The Bank of England’s recent 25-basis-point interest rate cut is set to benefit homeowners, particularly those looking to buy or remortgage. With a significant portion of UK homeowners on fixed-rate mortgages, the rate reduction is beneficial for those whose fixed-rate terms are ending in 2025, as it could lead to cheaper mortgage deals. While the cut won’t impact those with existing fixed-rate mortgages, experts say it may help stimulate the housing market by improving affordability and providing lenders with room to compete, particularly among first-time buyers. In addition to this, the rate cut is also expected to benefit consumers and businesses. Borrowers with credit cards and personal loans may see lower interest rates, depending on their credit history. For businesses, particularly small and medium-sized enterprises, lower rates could make borrowing cheaper, providing relief after recent cost increases like the national minimum wage hike. With reduced borrowing costs, firms may have more cash for investment, potentially boosting consumer confidence and spending, helping the UK economy recover.

Bank of England reduces interest rates to 4.25% as tariffs hit growth

Britain's labour&nbsp;market&nbsp;showed unexpected strength in the second quarter, in sharp contrast with figures last week that showed the economy contracted over the same period as the country gears up for Brexit.

Total earnings growth including bonuses rose by an annual 3.7 per cent in the three months to June - the highest rate since June 2008 and up from 3.5 per cent in May, and line with forecasts in a Reuters poll of economists.

The<a href="https://www.wionews.com/world/brexit-is-a-massive-economic-opportunity-uk-prime-minister-johnson-238855">&nbsp;jobs&nbsp;market&nbsp;has been a silver lining</a> for the economy since the Brexit vote in June 2016, something many economists have attributed to employers preferring to hire workers they can later lay off rather than making longer-term commitments to investment.

Tuesday's figures showed Britain created 115,000&nbsp;jobs&nbsp;in the second quarter, bringing the level of employment to a record 32.811 million, the Office for National Statistics (ONS) said.

"The&nbsp;jobs&nbsp;market&nbsp;remains a source of strength for the&nbsp;UK&nbsp;economy, though it may now be reaching its peak," said Tej Parikh, chief economist at the Institute of Directors.

Sterling showed little reaction to the data, which tends to lag broader trends in the economy and had also appeared healthy in the lead-up to the financial crisis.

Excluding bonuses, annual pay growth picked up to 3.9 per cent from 3.6 per cent, the ONS said, compared with the poll forecast for growth of 3.8 per cent.

A little of the strength in the pay data reflected the unusual timing of annual pay rises for public health workers in 2018 when a larger-than-normal increase was deferred until July.

Some details pointed to tougher times ahead after data last week showed the economy unexpectedly shrank by 0.2 per cent in the three months to June.

The unemployment rate rose to 3.9 per cent, against expectations for it to hold steady 3.8 per cent, and while employment growth far exceeded forecasts, part-time rather than full-time&nbsp;jobs accounted entirely for the increase.

Output per hour, the headline measure of productivity, fell 0.6 per cent in annual terms - the fourth quarter of decline in a row and the longest such run since mid-2013.

Poor productivity is one of Britain's biggest economic challenges and, until recently, had contributed to a decade of weak pay growth.

The number of job vacancies, an indicator of future employment, fell to 820,000 in the three months to July from 824,000 in the period to June, the lowest level in more than a year.

Some recent surveys of companies have suggested employers are turning more cautious about hiring as new Prime Minister Boris Johnson has pledged to take Britain out of the European Union on October 31, with or without a deal.

The Bank of England said this month it saw signs of a softening in labour&nbsp;market&nbsp;indicators.

Britain's labour market showed unexpected strength in the second quarter, in sharp contrast with figures last week that showed the economy contracted over the same period as the country gears up for Brexit.

Britain's labour market showed unexpected strength in the second quarter, in sharp contrast with figures last week that showed the economy contracted over the same period as the country gears up for Brexit. Total earnings growth including bonuses rose by an annual 3.7 per cent in the three months to June - the highest rate since June 2008 and up from 3.5 per cent in May, and line with forecasts in a Reuters poll of economists. The jobs market has been a silver lining for the economy since the Brexit vote in June 2016, something many economists have attributed to employers preferring to hire workers they can later lay off rather than making longer-term commitments to investment. Tuesday's figures showed Britain created 115,000 jobs in the second quarter, bringing the level of employment to a record 32.811 million, the Office for National Statistics (ONS) said. "The jobs market remains a source of strength for the UK economy, though it may now be reaching its peak," said Tej Parikh, chief economist at the Institute of Directors. Sterling showed little reaction to the data, which tends to lag broader trends in the economy and had also appeared healthy in the lead-up to the financial crisis. Excluding bonuses, annual pay growth picked up to 3.9 per cent from 3.6 per cent, the ONS said, compared with the poll forecast for growth of 3.8 per cent. A little of the strength in the pay data reflected the unusual timing of annual pay rises for public health workers in 2018 when a larger-than-normal increase was deferred until July. Some details pointed to tougher times ahead after data last week showed the economy unexpectedly shrank by 0.2 per cent in the three months to June. The unemployment rate rose to 3.9 per cent, against expectations for it to hold steady 3.8 per cent, and while employment growth far exceeded forecasts, part-time rather than full-time jobs accounted entirely for the increase. Output per hour, the headline measure of productivity, fell 0.6 per cent in annual terms - the fourth quarter of decline in a row and the longest such run since mid-2013. Poor productivity is one of Britain's biggest economic challenges and, until recently, had contributed to a decade of weak pay growth. The number of job vacancies, an indicator of future employment, fell to 820,000 in the three months to July from 824,000 in the period to June, the lowest level in more than a year. Some recent surveys of companies have suggested employers are turning more cautious about hiring as new Prime Minister Boris Johnson has pledged to take Britain out of the European Union on October 31, with or without a deal. The Bank of England said this month it saw signs of a softening in labour market indicators.

UK jobs market shines, but clouds on the horizon

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Bank of England reduces interest rates to 4.25% as tariffs hit growth

UK jobs market shines, but clouds on the horizon