Bank of England: Interest rate is reduced to 4.5% but warnings issued over growth for the rest of the year

UK interest rates have fallen to 4.5% after the Bank of England voted to cut borrowing costs, as it also slashed short-term growth forecasts for the economy.

The Bank’s Monetary Policy Committee (MPC) voted for a quarter-point reduction after similar cuts in August and November last year, bringing the base rate to its lowest point since June 2023.

Governor Andrew Bailey said the cut will be “welcome news to many” but that the Bank is “monitoring the UK economy and global developments very closely, and taking a gradual and careful approach to reducing rates further”.

In less optimistic news, the last few years, defined by the cost-of-living crisis and high inflation, are not quite in the rear-view mirror yet.

The Bank halved its growth forecast for the UK economy to 0.75% for this year, down from previous estimates of 1.5%, before accelerating again in 2026 and 2027.

The downgrade is a blow to chancellor Rachel Reeves after Labour made growing the economy its key priority.

It also comes amid signs inflation is rising again, with forecasts pointing to a higher-than-expected peak of 3.7% later in the summer.

Between September 2022 and March 2023, the UK saw seven months of double-digit inflation, peaking at 11.1% in October 2022. In the last three years., consumer prices have increased by more than 20%.