Economic update: Bank of England cuts interest rates to support growth

The Bank of England has announced a reduction in its base interest rate from 4.25% to 4.00%, marking its fifth cut since August 2024. This decision reflects growing concerns about the UK’s economic outlook and aims to provide support amid slowing growth and a cooling labour market.

The broader economic picture

Despite inflation rising to 3.6% in June, well above the Bank’s 2% target, policymakers are increasingly focused on the broader economic picture. Recent data shows that the UK economy contracted in both April and May, with business investment and consumer spending weakening. Manufacturing and services sectors are also reporting slower demand, and unemployment is beginning to rise—signs that the economy is under pressure.

What the Bank aims to achieve

The Bank’s Monetary Policy Committee (MPC) faces a delicate balancing act. While inflation remains elevated, much of the recent price pressure stems from volatile food and energy costs. At the same time, higher borrowing costs have dampened business expansion and household spending. By cutting rates, the Bank hopes to ease financial conditions, support demand, and prevent a deeper slowdown.

Looking ahead

Looking ahead, the MPC has signalled that further rate cuts may be considered, but any future moves will be data dependent. The Bank remains committed to its inflation target and will act cautiously to avoid reigniting price pressures.

This rate cut may lead to lower borrowing costs, improved access to credit, and a more supportive environment for investment. However, it also reflects ongoing economic uncertainty, and businesses should continue to monitor developments closely.

“Although Covid feels a long time ago, it was a catalyst for supply issues and a trigger for inflation. Our economy today is still sensitive to inflationary triggers, with us all considering our spending. One purpose of investing for the long term is to ensure your money today has the same purchasing power going forwards. 

“Economies are ever turbulent and reactive and short-term noise should not influence the long-term financial plan.”

– Roy Coulson, Head of Proposition at Attivo

This is not financial advice or a recommendation and should not be considered as such. If you choose to invest, please remember the value of investments and any income derived from them can fall as well as rise and you may get back less than you originally invested.  Attivo (a trading name of Attivo Financial Limited) is authorised and regulated by the Financial Conduct Authority.