Bank of England cuts interest rates by quarter point

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UK: The Bank of England has cut the cost of borrowing, reducing the base interest rate from 4.5 per cent to 4.25 per cent, a decision that stems from concerns about global economic uncertainties, particularly US trade tariffs.

The Bank’s monetary policy committee (MPC) made the widely anticipated decision, marking its fourth rate cut since last August. However, the MPC also issued a cautionary note, predicting a 0.3 per cent further slowdown in the UK economy over the next two years, on top of significant reductions to their forecasts earlier this year.

The interest rate cut to 4.25 per cent is set to ease borrowing costs for investors and developers, and is expected to have a significant impact on the UK’s real estate market. It will likely encourage more activity in both the commercial and residential sectors.

However, experts caution that wider economic risks – including inflation, geopolitical instability, and subdued, GDP growth (one per cent forecast for 2025) – could temper the benefits of rate cuts and requires continued strategic oversight.

Kate Nicholls, chief executive of UKHospitality, said: “This cut to interest rates is positive for hospitality businesses. Many venues are still paying back Covid loans and have been suffering under high interest rates, as well as continuing to grapple with the £3.4 billion in additional annual cost that was placed upon them last month.

“Driving economic growth is rightly the government’s focus and it’s clear that the markets are anticipating further cuts to interest rates this year. It’s important the Bank of England meets those expectations. This will be absolutely vital for hospitality businesses to fulfil their ability to support our communities, create local jobs and drive socially productive growth,” she added.

Barret Kupelian, chief economist at PwC UK, said: “The 25-basis-point cut by the MPC was neither dramatic nor daring. It was simply the sensible response to three factors that are likely to dampen UK inflation pressures in the future.

“First, with a UK retaliation to tariffs appearing unlikely, a surge in global trade uncertainty keeps businesses and household spending cautious and measured but reduces the risk of tariff led inflation. Second, as a net importer of goods and energy, Sterling’s rally of around seven per cent since January makes UK imports relatively less expensive. And third, Brent crude trading at about $60 a barrel against the Bank’s February conditioning assumption of $74.

“Cutting rates in a fog is like trimming sails in a storm. It’s the only way to keep the ship moving, but it won’t guarantee clear skies. Still, it’s a welcome first stitch in what is proving to be an uncertain world.”

Jonathan Sparks, chief investment officer UK, HSBC global private banking and wealth, said: “A slew of weaker economic data has led to a broad consensus of cuts to economic growth forecasts and the BoE echoed this trend with a 0.25 per cent cut to its 2026 GDP growth to 1.25 per cent. However, the good news is that plummeting energy prices and a strengthening GBP have pushed inflation forecasts lower, giving the BoE more room to be dovish in the latter half of the year.

“We prefer to remain selective on equity investments and keep an eye on the data for signs of improvement. Around the five-10 year maturities of gilts, real inflation-adjusted yields are fractionally below two per cent. This is a great opportunity to lock in near risk-free rates of return that would have seemed well beyond reach only a few years ago. If the base rate falls to three per cent in Q3 2026, as we expect, then there is also room for capital gains. The GBP has strengthened largely due to USD weakness.”