The Bank of England has cut its benchmark interest rate by 25 basis points to 4%. The vote was tight at 5 for and 4 against, with one member, Alan Taylor, preferring to reduce Bank Rate by 50 bps points, to 3.75%. Markets had anticipated the rate cut in advance of the meeting.
The Bank said that there has been substantial disinflation over the past two and a half years, with the Committee focused on reducing persistent inflationary pressures, to return inflation sustainably to its 2% target. At the same time, CPI inflation is expected to increase slightly further, peaking at 4.0% in September. Inflation is predicted to decline after that. Overall, there is a growing belief that the upside risks associated with medium-term inflationary pressures have shifted slightly higher since May.
A key topic of discussion by the Monetary Policy Committee (MPC) was the tariffs enacted by the US, with risk declining as a deal has been made with the UK and other jurisdictions.
Monthly UK GDP growth in April and May was -0.3% and -0.1%, respectively. These numbers indicate astronger GDP growth earlier in the year perhaps driven by international tariff or domestic tax-related front-loading.
The Bank estimated that GDP growth was 0.1% in Q2 2025, in line with the projection in the May Report, and growth was expected to pick up to 0.3% in Q3.
The decision to cut follows the US decision to hold rates steady. At the same time, recent data in the US now indicates two or three cuts before the end of the yea,r with a cut expected in September.
The ongoing lack of clarity regarding tariffs, along with geopolitical challenges, continues to vex market observers. The Bank said that a gradual and careful approach to the further withdrawal of monetary policy restraint remained appropriate.
Douglas Grant, Group CEO of Manx Financial Group, said that “While the Bank of England’s decision to cut interest rates to 4% offers some relief, the broader environment remains tough for UK SMEs. Ongoing cost-of-living pressures and geopolitical instability continue to erode business confidence.”
Grant reiterated their perspective that UK SMEs continue to pare back due to uncertainty and the need for more affordable financing.
“To unlock this potential, we urge the government to adopt five urgent policy priorities. First, support exports and manage currency risk by widening access to international markets and providing financial tools to help SMEs navigate global volatility. Second, strengthen supply chains and digital scalability to boost resilience and unlock new trading opportunities. Third, reform credit access and incentivise investment in digital and green technologies, making it easier for SMEs to raise capital. Fourth, modernise tax and pension systems to foster innovation, attract capital, and reflect the needs of a modern, agile economy. Finally, launch a national digital skills accelerator to address workforce gaps in AI, tech, and green industries, key sectors for future growth.”
Grant believes that decisive action by the UK government will bolster the UK’s economic strength.
Paul Noble, CEO of Chetwood Bank, said the rate cut was welcomed, but the economy is in desperate need of a kickstart.
“Domestically and globally, the economy has taken a beating over the last year, but a trade deal secured with the US is one factor that has started to ignite some flickers of hope and likely prompted the MPC to continue to ease off on the brakes. However, inflation remains above target, and many will argue that the MPC should have not only acted sooner but acted more decisively too. After all, leadership isn’t just about reacting when conditions are safe – it’s about shaping the path forward.”
Noble said that “bolder action” is needed.
“Nevertheless, today’s decision should be seen as a green light by investors. Rates are now far below their peak, and the lending markets should respond in turn. Pent-up demand can now be released, and we should expect activity levels to rise in the aftermath of today’s news.”