Bank of England Cuts Interest Rate to 4% Amid Economic Struggles

The Bank of England (BoE) has reduced its main interest rate by 0.25 percentage points to 4%, the lowest level since March 2023. This decision, aimed at stimulating the UK's slowing economy, was narrowly passed by the Monetary Policy Committee (MPC) with a 5-4 vote, highlighting internal divisions within the central bank.

The UK economy has been grappling with persistent inflation and a weakening labor market. In June 2025, inflation stood at 3.6%, exceeding the BoE's 2% target. The BoE now forecasts inflation peaking at 4% in September, driven by food price pressures. Additionally, unemployment has risen to 4.7%, the highest in four years, indicating a softening labor market.

Governor Andrew Bailey described the rate cut as a "finely balanced decision," indicating that future cuts will be gradual due to uncertainties about inflation and growth.

The market responded swiftly to the BoE's decision. The pound and gilt yields rose as investors reduced expectations of further rate cuts due to the tight vote.

Chancellor Rachel Reeves described the rate cut as a sign of stability. However, critics argue it reflects economic weakness and growing unemployment.

This rate cut marks the fifth reduction since August 2024, when the rate stood at a 16-year high of 5.25%. The BoE's decision comes amid a backdrop of global economic challenges, including trade tensions and domestic fiscal uncertainty.

The rate cut aims to stimulate the slowing UK economy by making borrowing cheaper for consumers and businesses. However, with inflation remaining above target and unemployment rising, the effectiveness of this measure is uncertain. The narrow vote indicates internal divisions within the BoE, suggesting caution in future monetary policy decisions.

As the BoE navigates these economic challenges, the balance between stimulating growth and controlling inflation remains delicate. The central bank's future decisions will be closely watched for their impact on the UK's economic recovery amid global uncertainties.