The Bank of England has halved its growth forecast for 2025 as it cut interest rates to 4.50% – the lowest for around 18 months
The economy is now expected to grow by 0.75% in 2025, the Bank of England reportedly said, down from its previous estimate of 1.5%.
Not good news for the chancellor, Rachel Reeves.
Bank of England cuts interest rates to 4.5% amid economic slowdown
The Bank of England announced a reduction in its benchmark interest rate from 4.75% to 4.5%, marking the third cut since August 2024.
This decision comes as a response to the ongoing economic challenges facing the UK, including sluggish growth and concerns about the potential effect of Trump’s tariffs.
The primary reason behind this rate cut is the Bank’s effort to stimulate economic activity by making borrowing cheaper.
With the cost of borrowing now at its lowest level since June 2023, homeowners with variable rate or tracker mortgages will see immediate relief, with monthly repayments expected to decrease by approximately £29 per month on an average mortgage.
Small businesses, which have been struggling under heavy borrowing burdens, are also expected to benefit from this move.
Growth concerns linger
The Bank’s decision follows a series of disappointing economic indicators. The latest GDP figures showed that the economy only grew by 0.1% in November 2024, falling short of economists’ forecasts.
This sluggish growth, coupled with two months of falling output, has led the Bank to revise its growth forecast for 2025 downward.
The Bank now anticipates no growth during the fourth quarter of the year, and some economists are predicting as many as six rate cuts this year, potentially bringing the rate down to 3.25%.
While the rate cut is expected to provide some relief to borrowers, it also raises concerns about the long-term impact on savings and investment. With interest rates at historic lows, savers may find it challenging to earn meaningful returns on their deposits.
Additionally, the low-interest rate environment could encourage excessive borrowing and lead to asset bubbles, posing risks to financial stability. Has inflation finished?
The Bank of England’s decision to cut interest rates to 4.50% is a strategic move aimed at boosting economic activity and providing relief to businesses and homeowners.