Bank of England slashes interest rates to 4.5% in bid to boost economy, but warns households will face renewed pressure from rising prices.
The Bank of England has made a significant move by cutting interest rates to 4.5% in an effort to provide financial relief to borrowers. This reduction comes with a warning that households will face renewed pressure from rising prices, with inflation expected to reach a fresh peak of 3.7% by the autumn.
Established in 1694, the Bank of England is the central bank of the United Kingdom.
Its primary function is to maintain monetary and financial stability within the country.
The bank's main responsibilities include setting interest rates, managing inflation, and regulating the UK's banking system.
With a long history dating back over 300 years, the 'crucial role' in shaping the UK's economy has been played by the Bank of England.
Today, it remains one of the world's most respected central banks, with a reputation for excellence and stability.
The rate cut is likely to have a positive impact on mortgage holders, as lower interest rates can lead to reduced monthly payments. However, savers may be less pleased, as lower interest rates can reduce the returns on their savings.
The Bank’s decision has been made in light of bleak forecasts for the UK economy. The Bank’s growth forecast for 2025 has been halved from 1.5% to 0.75%, and inflation is expected to reach a fresh peak of 3.7% by the autumn. This has raised concerns that households will face renewed pressure from rising prices.
The United Kingdom has a mixed economy, blending elements of capitalism and socialism.
The service sector dominates, accounting for around 80% of GDP.
Major industries include finance, healthcare, education, and tourism.
The UK is a significant player in global trade, with a strong focus on European markets.
Key statistics include: GDP (2020): £2.1 trillion; inflation rate (2020): '0.7%'; unemployment rate (2020): '3.9%'.
The economy has experienced periods of growth and recession, influenced by factors such as Brexit, global trade policies, and domestic fiscal decisions.
The Government faces increasing pressure over its handling of the economy. The Chancellor, Rachel Reeves, has been under scrutiny amid a rise in government borrowing costs, and industry groups have warned that Labour’s planned increase in employers’ national insurance contributions could lead to job losses or price rises.
The Bank is also monitoring global trade policies closely, warning that Britain would not be immune to a global trade war. ‘Greater global protectionism would be likely to have a negative impact on world economic activity in the medium term, and lead to increased trade fragmentation,’ it said.
Despite the rise in inflationary pressures, the Bank’s monetary policy committee (MPC) believes that weakening economic growth and a deteriorating jobs market will lead to falling inflation in future. However, this is expected to take until the end of 2027 for the rate to return to its 2% target.
The Bank’s governor, Andrew Bailey, said: ‘It will be welcome news to many that we have been able to cut interest rates again today. We’ll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further.
The Governor of the Bank of England is the chief executive of the central bank, responsible for setting monetary policy in the UK.
The role was first established in 1694 and has since been held by prominent economists and bankers.
As of 2021, Andrew Bailey holds the position, succeeding Mark Carney.
The Governor plays a crucial role in maintaining price stability and financial stability, working closely with the Monetary Policy Committee to set interest rates and regulate the money supply.
