Bank of England cuts interest rates to 4.25%
By Abigail Townsend
Date: Thursday 08 May 2025
(Sharecast News) - The Bank of England lowered interest rates to 4.25% on Thursday, as widely expected, its second cut so far this year.
In a surprisingly tight vote, the Monetary Policy Committee agreed by a majority of 5 to 4 in reduce the cost of borrowing by a quarter point.
Swati Dhingra and Alan Taylor argued for a larger cut, of 50 basis points, while chief economist Huw Pill and external member Catherine Mann wanted to leave rates at 4.5%.
It is the fourth cut in the current cycle, after rates were hiked in response to soaring inflation.
It is also the BoE's first decision since US president Donald Trump unveiled his sweeping tariff regime on 2 April, and coincided with the imminent announcement of a US-UK trade deal.
In the minutes accompanying the decision, the MPC said a "gradual and careful approach to further withdrawal of monetary policy restraint remains appropriate". It also flagged that the tariff regime could weigh on economic growth, but the outlook remained unclear.
Speaking afterwards, governor Andrew Bailey said easing inflationary pressures had allowed the MPC to cut.
But he added: "Interest rates are not on auto-pilot. They cannot be.
"Instead, the MPC must continue to respond carefully to the evolving economic circumstances and the outlook for inflation."
Inflation currently stands at 2.6%, ahead of the BoE's long-term target of 2%.
Bailey said he welcomed a trade deal with the US, although stressed the BoE had not been briefed on the contents of any agreement.
Trump posted on social media on Thursday morning that the UK and US had signed a "full and comprehensive" deal, but did not provide further details. A White House press conference is scheduled for later this afternoon.
Alpesh Paleja, deputy chief economist at the CBI, said: "The big question now is whether this gradualism will persist. Disinflationary risks have intensified over the last couple of months: US tariffs pose a fresh headwind to growth, global oil prices have fallen and, at home, the labour market is cooling,
"But heightened uncertainty could keep the MPC from easing off on the brakes too much. Evolving global trade dynamics, and the potential for further restrictions, could affect UK inflation in either direction."
ING said: "Investors were primed for signals that the committee was preparing to pivot, and ahead of the meeting, two further cuts were priced at the next three meetings.
"Instead, the BoE stuck to its previous script, simply reiterating that future cuts are likely to be gradual and careful.
"Part of the issue, we suspect, is that investors had overstated the role tariffs would play in the BoE's decision-making. While the added uncertainty and weaker outlook for global growth will become a headwind, the reality is that the direct impact of US tariffs so far looks very limited."
Luke Bartholomew, deputy chief economist at Aberdeen, said: "We still think the BoE will cut rates at least twice more later this year, but much like the Federal Reserve's message yesterday, UK policymakers will want to see more data on how tariffs and domestic tax increases are being digested by the economy before moving decisively."
Last month, Trump - who wants lower US interest rates - called Fed chair Jerome Powell a "major loser". However, on Wednesday the Fed held steady, leaving the cost of borrowing unchanged on concerns that the tariff regime will cause higher unemployment and inflation. Trump called Powell a "fool" on Truth Social on Thursday.
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