Bank of England Reduces Key Interest Rates to 4 Percent
(MENAFN) The Bank of England reduced its key interest rate by 25 basis points on Thursday, bringing the benchmark rate down to 4%—its lowest level since March 2023. The move aligned with market expectations and marks the fifth rate cut since the central bank began easing borrowing costs in August last year.
“There has been substantial disinflation over the past two and a half years, following previous external shocks, supported by the restrictive stance of monetary policy,” the Bank said in an official statement.
It added, “That progress has allowed for reductions in Bank Rate over the past year. The Committee remains focused on squeezing out any existing or emerging persistent inflationary pressures, to return inflation sustainably to its 2% target in the medium term.”
According to the Bank, underlying domestic price and wage pressures have continued to ease, albeit unevenly.
“Twelve-month CPI inflation increased to 3.5% in 2025 Q2, owing to developments in energy, food and administered prices. Pay growth remains elevated, but has declined further recently, and is still expected to slow significantly over the rest of the year. Services consumer price inflation has been broadly flat over recent months,” it said.
While acknowledging signs of easing wage pressures, the Bank emphasized it remains “vigilant” about how those trends could affect overall inflation.
“CPI inflation is forecast to increase slightly further to peak at 4.0% in September. Inflation is expected to fall back thereafter towards the 2% target, although the Committee remains alert to the risk that this temporary increase in inflation could put additional upward pressure on the wage and price-setting process,” the statement noted.
The Bank also reported that UK GDP growth remains sluggish, consistent with a gradual cooling in the labor market. Trade policy uncertainties have eased “somewhat,” it said, but domestic and global geopolitical risks continue to pose threats to economic activity.
The decision to cut rates came on a narrow 5-4 vote within the Bank’s Monetary Policy Committee, reflecting ongoing caution amid persistent inflation risks.
UK annual consumer inflation rose to 3.6% in June—its highest level since January 2024—up from 3.4% in May.
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