The Bank of England cuts its main interest rate to 4%, the lowest level
since March 2023
[August 08, 2025] By
DANICA KIRKA
LONDON (AP) — The Bank of England cut its main interest rate Thursday by
a quarter percentage point to 4%, as policy makers seek to bolster the
sluggish U.K. economy.
Thursday’s decision was widely anticipated in financial markets as the
bank’s Monetary Policy Committee balances its responsibility to control
inflation against concern that rising taxes and U.S. President Donald
Trump’s global trade war may slow economic growth. The committee voted
5-4 in favor of the cut.
The rate cut is the bank’s fifth since last August, when policy makers
began lowering borrowing costs from a 16-year high of 5.25%. The Bank of
England’s key rate — a benchmark for mortgages as well as consumer and
business loans — is now at the lowest level since March 2023.
“There will be hopes that if loans become cheaper, it will help boost
consumer and business confidence but there’s a long way to go,” Susannah
Streeter, head of money and markets at Hargreaves Lansdown, said before
the decision. “In the meantime, speculation over potential tax rises in
the Autumn Budget may keep households and companies cautious, given the
uncertainty over where extra burdens may land.”

Policymakers decided to cut rates even though consumer prices rose 3.6%
in the 12 months through June, significantly above the bank’s 2% target.
The bank said the recent rise in consumer prices was largely due to
temporary increases in food and energy costs, and inflation should begin
falling later this year after peaking at around 4%. Inflation should be
back in line with the target by the second quarter of 2027, the bank
said.
Against the backdrop, policy makers were faced with concerns about the
sluggish economy.
The bank estimated that economic growth slowed to 0.1% in the second
quarter of 2025, from 0.7% in the first three months of the year. Gross
domestic product is expected to grow 0.3% in the third quarter, the bank
said.
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A general view of the Bank of England in the City of London, March
17, 2022. (AP Photo/Alastair Grant, File)
 “There are slightly more risks on
the downside to activity,” Bank of England Governor Andrew Bailey
told reporters after the rate decision was announced. “Economic
growth is subdued, the labor market continues to loosen and
consumption growth may take longer to pick up.”
The National Institute of Economic and Social Research, an
independent think tank, said earlier this week that the government
may be forced to raise taxes later this year due to slowing growth,
rising borrowing costs and pressure to increase spending.
Britain’s unemployment rate rose to 4.7% in the three months through
May, the highest level in four years, signaling that previous tax
increases and uncertainty about the global economy are weighing on
employers.
The U.K. Treasury chief, Rachel Reeves, said the government was
working to lock in long-term economic growth by investing in
infrastructure, negotiating international trade deals and working to
make Britain a hub for the development of artificial intelligence
and other innovative technologies.
Reeves and Prime Minister Keir Starmer have sought to avoid
unpopular tax increases and spending cuts with policies designed to
spur economic growth and increase tax revenue ever since they took
office in July 2024.
“This fifth interest rate cut since the election is welcome news,
helping bring down the cost of mortgages and loans for families and
businesses,” Reeves said in a statement.
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