United Kingdom Interest Rate

The Bank of England voted 5–4 to cut Bank Rate by 25bps to 4.25% in May as expected. Two members preferred a larger cut to 4%, while two opted to hold at 4.5%. The decision reflects continued disinflation progress as external shocks eased and tight policy helped anchor inflation expectations. UK GDP growth has slowed since mid-2024, and the labour market is loosening. CPI inflation fell to 2.6% in March, though a temporary rise to 3.5% is expected in Q3 due to earlier energy price spikes. Inflation is forecast to ease again thereafter. Pay growth remains high but is expected to slow. Global uncertainty has risen due to new US tariffs, weakening global growth and lowering market interest rate expectations. The MPC remains committed to returning inflation to 2% sustainably. Future policy will depend on evolving risks and inflation dynamics. A cautious, data-driven approach to reducing policy restraint remains appropriate.