The Bank of England has taken another step toward easing, cutting the base rate from 4.5% to 4.25% in a widely anticipated but cautious move. There was however a split in the voting so it wasn’t unanimous.
With inflation easing—coming in at 2.6% in the year to March—markets had priced in a cut, though the Bank’s measured 25bp shift suggests policymakers remain wary, especially with fresh consumer bill hikes expected to push the next inflation print higher.
The decision follows a holding pattern from the US Federal Reserve just hours earlier, amid mounting concerns over stagflation. Against this uncertain backdrop, industry commentators have been quick to share their views on what the BoE’s move means for investment strategies, client portfolios and financial planning.
George Brown, Senior Economist, Schroders said: “Today’s decision came as no surprise to anyone. But going forward, the Bank of England has far less scope to cut rates than the market currently expects. “While Trump’s tariffs will provide some marginal relief through lower goods prices, the fundamental issue for the UK is that it continues to face considerable capacity constraints. As such, inflation looks set to rise again later this year as a result of disappointing productivity and sticky wage growth. To our minds, this is consistent with the Bank only taking interest rates as low as around 4% this rate-cutting cycle.”
Commenting on the interest rate decision, Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner said:
“The Bank of England cut rates by a quarter point today to 4.25%. This news did not come as a surprise, though what did was the split of votes – five members supporting 25bps cut, two members favouring a larger cut, while two favouring rates to remain where they are. With inflationary pressures easing on one hand but increasing uncertainty due to Trumpian policies, the Chairman was quick to stress a “gradual and careful approach” to further reductions.
“This will come as a relief to homeowners, who are refinancing as it has an immediate impact of lending rates. But there is a school of thought that could look at this action from the central bank as hawkish, signalling softer growth going forward. While this hypothesis may be compelling, would it imply that it could change the speed with which rates are trimmed? An argument would be that growth is a greater priority for the British economy which would require a greater push not only from the cross border trade deals being made with India, EU and the US, but also larger than anticipated fiscal loosening.”
Ed Monk, Associate Director, Fidelity International comments on the Bank of England’s decision to cut rates for the second time this year: “Today was another step downwards for rates and is likely to be followed by a few more before the year is out.
“Ahead of the announcement, the bond markets were pricing in four quarter point cuts by January 2026 – the cut today means there are three left in 2025 if the forecasts come to pass. The fact that two MPC members voted for a half-point cut suggests the momentum for rate cuts is building.
“The announcement of US trade tariffs last month provided downward pressure on rates. Tariffs complicate the picture for central banks. On the one hand they are likely to be inflationary, making it harder for them to lower rates as inflation comes under control. Yet, they are also likely to slow down growth, taking momentum out of economies.
“Markets appeared to be betting on tariffs prompting central banks to lower rates more quickly to ease economic conditions. Investors will now be watching to see if the announcement of progress of a US/UK trade deal changes that picture. Even ahead of that news, the Bank asserted that the UK would not feel any slowdown as badly as other economies.
“Falling rates have been changing investor behaviours. Fidelity’s recent polling of investors showed that one in three (29%) is planning to more money from cash savings to investments in an ISA this year. This trend may well accelerate as rates begin to fall more quickly and cash returns dip.”
Helen Vieira, Head of Banks at Flagstone International: “The Bank of England’s decision to reduce the base rate reflects mounting concerns over the UK’s economic resilience amid escalating global trade tensions. The contraction in the services sector and declining business activity underscore the challenges posed by recent international developments.
“For international cash depositors, this rate cut signals a shift towards a lower interest rate environment, potentially impacting returns. In this context, proactive cash management becomes essential. By diversifying holdings and staying attuned to global monetary policy shifts, depositors can navigate the evolving landscape and seek optimal returns across jurisdictions.”
Kirsty Watson, Chief Operating Officer at Aberdeen Adviser, said: “Today’s decision to cut rates is in line with market expectations that rates will fall by up to one percentage point within six months. It will be welcomed by many including the millions looking to remortgage this year and betting on lower rates but less so by those nearing retirement and considering annuities as rates might also come down.
“It is clear increasing global uncertainty remains and it is still worth consumers reassessing their financial plans – whether that’s revisiting the balance of cash or non-cash assets held, checking current strategies still support financial goals amid economic and market volatility, or speaking to a financial adviser who can help make sure your money is working as hard as it possibly can.”
Sarah Pennells, Consumer Finance Specialist at Royal London
“This rate cut is a double-edged sword. For mortgage holders on variable or tracker deals, the reduction will mean lower mortgage payments, which should be a boost to household budgets which have been stretched by the ‘Awful April’ bill rises. Interest rates on other forms of borrowing, such as credit cards, don’t always mirror falls in the base rate.
“Many savers are also borrowers, but some savers rely on their interest payments to provide an income. For them, any reduction in interest rates will not be welcome news. In the coming days and weeks, it’s likely we’ll see rates on easy-access and fixed-term savings accounts begin to fall, meaning savers may need to shop around more actively to get the best return.
“Those who are coming off a fixed-rate mortgage deal may have no choice but to switch to a higher rate when they remortgage. However, the good news is that competition among mortgage lenders has intensified in recent weeks, with a number now offering five-year fixed rate deals charging less than 4% interest. Anyone looking for a new mortgage deal should talk to a mortgage broker to ensure they get the best rate.”
Michael Metcalfe, Head of Macro Strategy, State Street Markets, said: “As a slow growing open economy with a large current account deficit, the UK is especially vulnerable to further shocks to global trade. The BoE’s cut today is attempting to get ahead of the potential downside risks to growth, but with two MPC members dissenting and coming, as it does, at a time when hopes of a trade deal with the US are rising, any negative impact on Sterling should be modest. Meanwhile the fact the committee was content to keep quantitative tightening at its current pace reinforces the message they are unperturbed by the recent volatility in long-dated bond yields.”
Freddy Colquhoun, Investment Director, JM Finn, commented: “In light of its 25bps cut today, the Monetary Policy Committee (MPC) states it is not following a pre-set path, remaining sensitive to heightened unpredictability. Despite divisions among MPC members, with two advocating for a 50bps (Dhingra as expected), the surprise came from Mann who voted to hold. The Committee admits there is a greater risk from global trade arrangements, and this could have a more deflationary effect on the UK. Alongside this, the MPC forecasts inflation to be at 3.5% in Q3 2025, before it starts to decline, and GDP growth will slow sharply in Q2 2025 to 0.1%, with risks skewed to the downside. This cut is as expected, but the report suggests a more dovish policy might be needed moving forward, and markets may expect a larger cut at its next meeting.”
Rathbones’ Stuart Chilvers said: “Our initial read of the Bank’s decision today is that it’s a slight hawkish surprise to market expectations. Whilst we got the 25 basis points cut that the market was fully pricing, we think the voting split and the details within the minutes were more hawkish than market participants had expected. Whilst we had two MPC members vote for a 50bps cut, we think expectations were that at least one member would vote for a 50 basis points cut, given historic voting. However, we don’t believe markets were expecting the two votes for no change in interest rates, and we think it is particularly notable that one of those who voted to leave rates unchanged was the Chief Economist. Furthermore, we saw guidance maintained that we should expected a gradual and careful approach to interest rate cuts, and it was notable that of the five members who voted to reduce rates by 25 basis points, most had judged this policy decision would be finally balanced between no change and a 25 basis points cut prior to the latest global developments – again we think this is more hawkish than market expectations.”
Lindsay James, investment strategist at Quilter said: “The Bank of England has opted to cut interest rates to 4.25%, with seven members of the MPC voting to lower rates in a sign of strong agreement around the threat to growth imposed on the UK economy by Trump’s tariffs. Indeed, two members wanted to go further and bring rates down to 4%, suggesting more drastic action is being considered as economic growth is forecasted to have stalled, although it should be noted two members opted to leave rates unchanged so the unanimity expected by the market is not there just yet.
“With the cut having been widely anticipated by markets, investors will focus now on the likelihood of a successive cut in June, seen to be in the balance in the run up to today’s meeting. Investors are betting on three further rate cuts this year as rising risks to growth look likely to supersede inflationary threats in the coming months.
“Although we are yet to see the impact on inflation from April’s hike to employer’s National Insurance contributions and national minimum wage, it is expected that much of this will be passed on to consumers through one-off price rises. Offsetting that however is the impact of falling energy prices, with the Energy Price Cap predicted to fall by around 9% in July, although we will see a rise in inflation for the third quarter due to prior energy price increases. Nevertheless, there is also the possibility that certain Chinese goods previously destined for the US may now find their way to the UK market, pulling down goods inflation in the process. The government desperately wants consumer confidence to return and will be hoping this rate cut can help turn the tide against the pessimistic economic outlook, especially if a lid can be kept on inflation.
“However, the UK and global economy remains in a period of hiatus as we await the outcome of a 90 day pause in reciprocal tariffs. With the UK and US expected to announce some sort of trade agreement, any retaliation from UK is now firmly off the cards. This removes one risk for the MPC in terms of the effect that would have on prices, however with the universal 10% tariff likely to remain in place for the UK, it could also be a case of damage limitation. With further threats on the expansion of tariffs to sectors such as the film industry, it is a reminder that Trump will happily shift the goalposts and make any kind of forward planning for the UK government or businesses next to impossible.”
Andrew Gething, managing director of MorganAsh, said: “Today’s cut marks a real shift in sentiment around the outlook on interest rates as we move away from the gradual, careful approach we’ve grown accustomed to. There’s no question that geo-political tensions have necessitated this change in pace, as well as increasing concerns around UK growth. Nonetheless, the cut today and the prospect of further cuts later in the year will be celebrated by potential borrowers, current borrowers not on fixed rates and by households that have seen their health, well-being and living standards impacted by persistent financial pressure.
“Even with today’s cut, and the narrative around future interest rates, we know this doesn’t solve all problems. Inflation is far from neutralised and with trade wars brewing, we’re not out of the woods yet. The reality is that financial difficulties will be just one factor among many that could push clients into a vulnerable position. We have to stay vigilant. In its most recent review, the FCA identified that many firms still cannot monitor or take action on outcomes for vulnerable customers, or provide suitable support at the time of need. No matter the interest rate environment, knowing who our vulnerable customers are and delivering the right outcomes has to be a priority for all firms.”
Nick Henshaw, head of intermediaries distribution at Wesleyan, said: “Today’s decision to cut rates was widely anticipated and it looks likely that rates will only fall further during 2025, with as many as three more cuts expected.
“In this environment, more savers will be looking away from cash towards equities to maximise returns. But many will also be worried at the volatility they see in the market, particularly over the last few weeks.
“For these people, the option of having part of their portfolio in a ‘smoothed’ fund could be incredibly valuable – giving them market exposure, but with a ‘smoothed’ investment journey that reduces the effect of short-term market fluctuations.”
Steve Ryder, senior portfolio manager at Aviva Investors, commented on today’s BOE decision: “As was widely expected today the BOE reduced interest rates by 0.25% and lowered their growth and inflation projections, with inflation now forecast to undershoot their target over the next two years. We expected a cautious commitment to further easing due to the uncertainty around the NIC impact. Instead, the statement was undeniably more hawkish with the main surprise being the vote split with two members calling for unchanged rates, and one calling for a 0.50% cut.
Our base case has been for quarterly cuts into the summer before more clarity on inflation and activity data slowing would open up a scenario for the BOE to move to sequential cuts. The US trade tariff announcement has now increased the uncertainty for the UK and today’s statement has reduced the chance of a consecutive cut in June. We still see the risks to activity data as to the downside and therefore a lower terminal rate than is currently priced. We maintain our overweight to short-dated UK rates and a preference for curve steepeners.”
Jonathan Ashworth, Chief Economist at ACCA, said: “Today’s rate cut was expected but nonetheless will be welcomed by businesses. The announcement of the rise in national insurance contributions for employers and other policy changes had a significant negative impact on business confidence, and the deterioration of the global economic backdrop amid trade tensions creates significant downside risks for the UK economy. Overall, today’s cut will ease borrowing costs for the private sector and should support the housing market. Further monetary easing is likely on its way over coming quarters.”
Daniel Casali, chief investment strategist at wealth management firm Evelyn Partners, comments: “While the macro picture has changed since the last Monetary Policy Committee (MPC) meeting in February to become more disinflationary, the BoE appears focused on cutting interest rates at a gradual pace of around one-quarter percentage point per quarter since it began easing last August.
“This decision came before any details on the UK-US trade have emerged, and indeed the devil will be in that detail. But this rate cut, alongside the news that the UK is the first country to strike a US trade deal, coming hot on the heels of the India agreement, will doubtless help the Government to paint a more optimist picture for the UK economy.
“Serious challenges of course remain and US trade tariff and general policy uncertainty still suggest downside risks to growth, a point made by the BoE governor Andrew Bailey at an Institute of International Finance event in Washington last month. Indeed, the latest PMI data indicates weak manufacturing and services sector activity. Subpar growth is feeding through to softer inflation data.
“Furthermore, energy prices have also been trending south: the price of Brent crude oil is down nearly 30% from a year ago, while sterling appreciation against the US dollar should also act to reduce import prices somewhat. All these factors should put ease inflationary pressure in the near term.
“Nevertheless, MPC members will be wary of cutting interest rates too quickly, with three issues in mind.
“First, it is not clear what impact US trade tariffs will have on inflation. Second, the latest nominal weekly earnings for the whole economy of 5.6% year-on-year (on a three-month moving average) is running uncomfortably higher than prevailing inflation. And finally, the latest YouGov survey of household inflation expectations has picked-up to 4%, its highest rate since October 2023.
Bottom line. Looking forward, the MPC is expected to stick to gradual and careful guidance on interest rates by cutting once a quarter, as the risk of policy error remains high. Nevertheless, gradually lower rates should provide some insurance against downside risks to the economy and UK domestic stocks.
Hamish Martin, Partner at LAVA Advisory Partners, said: “With the Bank of England finally trimming the base rate to 4.25%, we could well see a noticeable shift in M&A appetite, especially from private equity, who have been slightly more cautious of late with such comparatively high rates.
“Lower borrowing costs open the door for more leveraged deals, and we’re already seeing increased interest in lower-mid-market assets that might have been priced out just a few months ago. “For founders and business owners considering an exit, this could mark the start of a more favourable window, especially as buyers start to move more decisively and have lower-cost capital at their disposal.”
