The UK economy is facing a significant slowdown, with the Bank of England downgrading its growth forecast by half for this year. The reduced estimate of 0.75% growth in 2025 comes as a blow to Chancellor Rachel Reeves’ key priority of growing the economy.
The Bank of England has significantly reduced its growth forecast for this year, cutting interest rates to their lowest level in over 18 months. The economy is now expected to grow by just 0.75% in 2025, down from the previous estimate of 1.5%.
Established in 1694, the Bank of England is the central bank of the United Kingdom.
Its primary function is to maintain monetary stability and issue banknotes.
The bank's main responsibilities include setting interest rates, regulating the money supply, and acting as a lender of last resort for banks.
With a long history dating back to the 17th century, the Bank of England has played a crucial role in shaping the UK's economy.
Today, it is one of the world's most respected central banks, known for its expertise in monetary policy and financial regulation.
This move comes as a blow to Chancellor Rachel Reeves, who has made growing the economy one of her key priorities. Prime Minister Sir Keir Starmer acknowledged that he was ‘not satisfied with growth’ and stated that the downgraded forecast would only motivate him to make tougher decisions.
Rachel Reeves is a British politician serving as the Shadow Chancellor of the Duchy of Lancaster since 2020.
Born on June 18, 1979, in Leeds, England, she was educated at the University of Oxford and later became a journalist for The Times.
Reeves entered politics in 2005, representing the constituency of Leeds West until 2015.
She has been a vocal advocate for women's rights, climate action, and economic equality.
The Bank cut interest rates to 4.5%, which will have a significant impact on homeowners with mortgage tracker deals. The typical monthly repayment for these individuals will decrease by £29. However, those on standard variable rate mortgages will need to wait and see if their lender responds.
On the other hand, savers may face lower returns due to the rate cut. Nicola Price and her husband John, who have 18 months remaining on their mortgage deal, welcome lower interest rates but acknowledge that falling interest rates aren’t good news for everyone.
While the Bank has reduced its growth forecast for this year, it has upgraded its predictions for both 2026 and 2027. The economy is now expected to grow by 1.5% in both of those years, up from 1.25%. However, higher energy and water bills are predicted to push up inflation ‘quite sharply’ later this year.
Inflation is expected to rise to 3.7% and take until the end of 2027 to fall back to its 2% target. The Bank has warned that a number of factors could affect inflation, including possible trade tariffs in the US.
Inflation is a sustained increase in the general price level of goods and services in an economy over time.
It is measured as an annual percentage increase in the Consumer Price Index (CPI), which tracks the prices of a basket of goods and services.
Moderate inflation, around 2-3%, is considered healthy for economic growth.
However, high inflation can lead to reduced purchasing power, decreased savings, and increased borrowing costs.
Central banks use monetary policies, such as interest rate adjustments, to control inflation and maintain price stability.
The government faces a tough road ahead as it tries to boost the UK economy. Chancellor Reeves announced a number of measures last week, but her decision to increase employers’ National Insurance contributions from April has led to criticism from businesses who argue it will push up prices and hit investment and jobs.
Bank Governor Andrew Bailey acknowledged that the impact of the Budget is feeding through into lower confidence for businesses and households. He stated that the Bank needs to remain ‘gradual and careful’ when continuing to cut rates due to the predicted rise in inflation and uncertainty around trade tariffs.
