Bank of England lowers UK interest rates to 4.25% marking second cut this year
by Danielle de Wolfe · LBCBy Danielle de Wolfe
The Bank of England has cut UK interest rates for the second time this year, lowering rates to 4.25%.
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Rates had previously been held at 4.5%, with the lowering coming as welcome news to homeowners.
The bank has cited Donald Trump's trade war as one of the key reasons for the lowering of borrowing rates, with the UK's economic growth expected to be stronger than previously thought this year, but weaker over 2026 following the impact of tariffs.
The Bank's Monetary Policy Committee (MPC) voted to reduce borrowing costs given what it predicts to be a 'weaker' economy following the implementation of higher tariffs.
Rachel Reeves welcomed the interest rate cut but acknowledged families are still facing a cost-of-living squeeze.
The Chancellor said: "This interest rate cut is welcome news, and the fourth since we came into government making it cheaper for businesses to borrow, reducing the cost of a new mortgage, making homeownership more accessible, car finance more affordable and easing the pressure on those paying off personal loans.
"But there is more to do, and I know families are still facing cost-of-living pressures.
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She added: "In a changing world we're bringing stability to the public finances and going further and faster to grow the economy, putting more money in the pockets of working people through our plan for change."
Despite this, the MPC stopped short of labelling the trade war a recession-inducing event.
It comes as the Bank is expected to cut UK interest rates as low as 3.5% by early next year.
The projections show gross domestic product (GDP) will average at 1% this year, marking an upgrade from the 0.75% growth predicted in the Bank's last report in February.
This is largely due to growth over the first three months of 2025 being higher than the Bank had previously anticipated.
But the forecast for 2026 has been downgraded to 1.25%, from 1.5% previously.
The Bank also cut its growth outlook for the world economy to 1.5% in 2026, from 2% previously, as new US tariffs and heightened uncertainty over global trade weigh on economic activity around the world.
The decision comes moments before official confirmation of a US-UK trade deal, with the announcement set to come in a White House press conference at 3pm UK time.
The Confederation of British Industry said trade tariff uncertainty could push the Bank of England to be more cautious on rate cuts this year.
Alpesh Paleja, deputy chief economist at the CBI, said: "Today's cut to interest rates was widely anticipated, underscoring the Monetary Policy Committee's continued preference for a gradual loosening of monetary policy.
"The big question now is whether this gradualism will persist. Disinflationary risks have intensified over the last couple of months: US tariffs pose a fresh headwind to growth, global oil prices have fallen and, at home, the labour market is cooling.
"But heightened uncertainty could keep the MPC from easing off on the brakes too much.
It comes amid reports the Bank of England suspects Trump's tariffs may be less damaging than many had first assumed.