The Bank of England cuts interest rates - 6th February 2025

The Bank of England has reduced interest rates by 0.25% to 4.5%, marking the third cut since August and lowest rate since June 2023. The decision reflects concerns over subdued economic growth and persistent inflationary pressures. 

Following the announcement, the British pound depreciated by approximately 1.1%, trading at $1.2371, while the FTSE 100 index experienced a 1.6% increase. Yields on short-term government bonds also declined, indicating market expectations of further rate cuts. 

The Bank has revised its 2025 GDP growth forecast downward from 1.5% to 0.75%, citing both domestic challenges and global trade uncertainties. Inflation is projected to peak at 3.7% by autumn, significantly above the government's 2% target, before gradually declining towards the target by 2027. 

Chancellor Rachel Reeves responded to the Bank of England's recent interest rate cut to 4.5% by expressing that, while the reduction is a positive step, she remains dissatisfied with the current pace of economic growth. She emphasized the government's commitment to implementing policies aimed at stimulating economic expansion and improving living standards. However, the Bank's decision to halve its 2025 GDP growth forecast from 1.5% to 0.75% presents significant challenges to these objectives. 

In light of these developments, the Chancellor is expected to consider additional fiscal measures with the aim of bolstering economic growth and addressing the downgraded forecasts.