LONDON (AP) — The Bank of England cut its main interest rate Thursday by a quarter percentage point to 4%, as policy makers seek to bolster the sluggish U.K. economy.
Thursday’s decision was widely anticipated in financial markets as the bank’s Monetary Policy Committee balances its responsibility to control inflation against concern that rising taxes and U.S. President Donald Trump’s global trade war may slow economic growth. The committee voted 5-4 in favor of the cut.
The rate cut is the bank’s fifth since last August, when policy makers began lowering borrowing costs from a 16-year high of 5.25%. The Bank of England’s key rate — a benchmark for mortgages as well as consumer and business loans — is now at the lowest level since March 2023.
“There will be hopes that if loans become cheaper, it will help boost consumer and business confidence but there’s a long way to go,” Susannah Streeter, head of money and markets at Hargreaves Lansdown, said before the decision. “In the meantime, speculation over potential tax rises in the Autumn Budget may keep households and companies cautious, given the uncertainty over where extra burdens may land.”
Policymakers decided to cut rates even though consumer prices rose 3.6% in the 12 months through June, significantly above the bank’s 2% target.
The bank said the recent rise in consumer prices was largely due to temporary increases in food and energy costs, and inflation should begin falling later this year after peaking at around 4%. Inflation should be back in line with the target by the second quarter of 2027, the bank said.
Against the backdrop, policy makers were faced with concerns about the sluggish economy.
The bank estimated that economic growth slowed to 0.1% in the second quarter of 2025, from 0.7% in the first three months of the year. Gross domestic product is expected to grow 0.3% in the third quarter, the bank said.
“There are slightly more risks on the downside to activity,” Bank of England Governor Andrew Bailey told reporters after the rate decision was announced. “Economic growth is subdued, the labor market continues to loosen and consumption growth may take longer to pick up.”
The National Institute of Economic and Social Research, an independent think tank, said earlier this week that the government may be forced to raise taxes later this year due to slowing growth, rising borrowing costs and pressure to increase spending.
Britain’s unemployment rate rose to 4.7% in the three months through May, the highest level in four years, signaling that previous tax increases and uncertainty about the global economy are weighing on employers.
The U.K. Treasury chief, Rachel Reeves, said the government was working to lock in long-term economic growth by investing in infrastructure, negotiating international trade deals and working to make Britain a hub for the development of artificial intelligence and other innovative technologies.
Reeves and Prime Minister Keir Starmer have sought to avoid unpopular tax increases and spending cuts with policies designed to spur economic growth and increase tax revenue ever since they took office in July 2024.
“This fifth interest rate cut since the election is welcome news, helping bring down the cost of mortgages and loans for families and businesses,” Reeves said in a statement.
FILE - A general view of the Bank of England in the City of London, March 17, 2022. (AP Photo/Alastair Grant, File)
