The Bank of England has reduced its base interest rate to 3.75%, marking the lowest level in nearly three years. However, policymakers have signaled that deciding on future cuts will be a far “closer call.”
The decision was knife-edge, passing by a narrow 5-4 vote. This move away from the previous 4% rate reflects the Bank’s growing concern over rising unemployment and persistently weak economic growth.
While the Bank stated that rates are “likely to continue on a gradual downward path,” it explicitly warned that judgments on additional reductions in 2025 will be more contested among committee members. Governor Andrew Bailey emphasized this cautious stance, noting, “With every cut we make, how much further we go becomes a closer call.”
This increased caution comes alongside revised forecasts. Inflation is now projected to fall “closer to the 2% target” sooner than previously expected, which Governor Bailey hailed as “good news.” Nonetheless, the economic outlook remains fragile, with zero growth predicted for the final quarter of this year.
