Mr Bailey added: “I think the path [on interest rates] is still gradually and carefully downwards. I don’t think that that path is done. A lot will depend also of course on these important domestic developments. But I’m not going to make predictions about how quickly, how much, because there is so much now in a sense that we’re going to learn in the coming time.”
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UK government bond yields remain higher in reaction to the Bank of England’s rate cut, as some investors had bet the central bank would signal more quick rate cuts.
The yield on 10-year UK gilts is currently 4.329pc, up from 2.274pc yesterday.
Some analysts have argued the central bank could end up more hawkish than expected, as hard economic data shows no signs of a deteriorating outlook and the impact of tariffs will be small since the UK has limited exposure to US goods demand.
Unite, one of the UK’s largest trade unions, has welcomed the Bank of England rate cut, labelling the decision as “long overdue”.
Sharon Graham, the general secretary, has warned that interest rate reductions alone would not help workers.
She said: “This cut to interest rates is necessary and long overdue.
“However, we will need more serious action to reverse over a decade of falling living standards for workers and communities.
“This must include a joined-up industrial strategy to tackle energy profiteering, rebuild our industrial base and boost the economy.”
Two members of the Monetary Policy Committee voting to keep rates steady has defied the consensus among economists and poured cold water on speculation over back-to-back cuts.
Huw Pill and Catherine Mann preferred to hold rates on account of recent easing financial conditions and concerns over persistent inflation.
The more hawkish tone took many economists by surprise and caused the pound to surge as traders trimmed their bets on the chances of the BofE delivering another three rate cuts this year.
Philip Shaw of Investec said: “Two members including chief economist Huw Pill preferred to leave rates unchanged.
“That may reduce speculation as to a possible back-to-back reduction at next month’s meeting.”
Sanjay Raja of Deutsche Bank said the vote split signalled a cautious MPC which could “drag its feet on both the speed and scale” of rate cuts.
He said: “A ‘careful’ calibration of monetary policy is still very much a large part of the MPC’s parlance. And that doesn’t seem to be changing.
“The probability of sequential back-to-back rate cuts should drop on the back of this.”
Investment bank Nomura has said that although voting was surprising at the Bank of England today, interest rates are still likely to be cut by a further 0.75 percentage points by early next year.
Its economists said: “The big surprise from the MPC today was the vote split. It was not a surprise that two members of the committee voted for a [half a percentage point] cut … but the two votes for unchanged [Catherine Mann and Huw Pill] were unexpected.
“It is also worth noting, on the less dovish side, that most of the five members voting for the quarter-point cut argued the decision would have been ‘finely balanced between no change in Bank Rate and a further reduction’ without the news on trade.”
The Institute of Chartered Accountants in England and Wales (ICAEW) has praised the Bank of England’s rate cut as a “timely shot in the arm” for struggling businesses.
Suren Thiru, economics director, said: “This cut in interest rates is a timely shot in the arm for those businesses struggling to adjust to last month’s substantial spike in business costs and households contending with burdensome mortgage costs.”
He added: “With inflation expected to be slightly more subdued and concerns over turbulence in the global economy likely to persist, even with a US-UK deal on trade, the case for accelerating the pace of interest rate cuts may still increase.”
The average homeowner on a tracker mortgage will see their monthly repayments fall by nearly £29, after the quarter-point rate cut to the Bank of England base rate.
UK Finance said homeowners on tracker deals will typically see their monthly repayments reduce by £28.97, based on balances outstanding. This could add up to a saving of nearly £350 over the course of a year.
People on a standard variable rate (SVR) mortgage could see their monthly payments fall by £13.87, assuming that their lender passes on the base rate cut in full, which could add up to a saving of nearly £170 over a year.
Mortgage holders may end up on an SVR when their initial deal ends and the rate is set by individual lenders.
Many lenders have been chopping rates in recent weeks, including several offering deals at sub-4pc levels.
Around 85pc of outstanding mortgages are fixed rates – and homeowners on these deals will not see their rates change until they move onto a new deal.
According to UK Finance’s figures, 1.6m fixed-rate mortgage deals are due to end, or have already ended, at some point in 2025.
David Hollingworth, associate director at L&C Mortgages, said: “The good news for fixed-rate borrowers coming to the end of a deal is that rates have been falling.
“That’s because today’s cut was so widely expected that it’s already allowed lenders the chance to improve their rates. There’s still plenty of tweaking of rates in the market but fixed rates are looking to predict what will happen rather than react to base rate movement.”022.”
Donald Trump lashed out at the chairman of the Federal Reserve for holding interest rates steady shortly before his planned announcement on a UK-US trade deal.
The US president branded Jerome Powell a “fool” after the Fed opted to keep interest rates between 4.25pc and 4.5pc on Wednesday.
The US president wrote on Truth Social:
The cost of government borrowing rose after the split between policymakers at the Bank of England over interest rates cuts.
The yield on two-year UK gilts – a benchmark for short-term borrowing costs on bond markets – jumped six basis points to 3.86pc despite the cut the Bank Rate from 4.5pc to 4.25pc.
It came as two members of the Monetary Policy Committee voted for borrowing costs to stay on hold while Governor Andrew Bailey admitted he had been uncertain about how he would vote before the meeting.
Matthew Landon, a strategist at JP Morgan Private Bank, said: “The two votes from committee members to hold rates steady sent a more hawkish message to the market.
“Beneath the hood, we still think that the conditions for cuts remain in place.”
Chancellor Rachel Reeves said the cut in interest rates could make a “significant” difference to household finances.
She told reporters: “It’s very good news that we’ve had four interest rate cuts now in the last 10 months, and for someone on a variable rate mortgage that can mean around £100 a month off mortgage payments. So that is significant.
“I recognise, though, that families are still struggling with the cost-of-living crisis, and whether it is interest rates or inflation it’s so important that this Government has returned stability to the economy, because stability means lower inflation, lower interest rates, making working people better off.”
The Bank of England will not cut interest rates again this year, economists have predicted, after policymakers repeated thier guidance to take a “gradual and careful” approach to lowering borrowing costs.
Andrew Wishart, senior UK economist at Berenberg, said the language used by the Monetary Policy Committee (MPC) has so far indicated one rate cut per quarter, and predicted that inflation would not continue its downward movement.
“Moreover, two members unexpectedly voted to keep interest rates on hold due to fears market pricing had become overly stimulative and because the survey data points to persistent inflation.
“That is our view too, which is why we suspect that today’s interest rate cut will prove to be the last of the year.”
He added: “Indeed, the Bank of England itself forecast that core goods and services price inflation will be no lower come September than in the latest reading for March, in line with our view that the previous downward trend in underlying inflation is over.
“Alongside a resolution to trade policy uncertainty, we suspect that would cause the MPC to surprise financial markets and other economic forecasters by keeping interest rates on hold for the remainder of 2025.”
UK markets lacked direction after the “surprisingly close” vote by the Bank of England’s policymakers to cut interest rates.
Sterling was up 0.3pc to $1.333 while the FTSE 100 slipped 0.1pc to 8,552.35.
Matthew Ryan, a strategist at Ebury, said the Bank “appears thoroughly divided over the path ahead for UK rates”
Anna Leach, chief economist of the Institute of Directors, said: “It is clear from the minutes that the MPC are caught between concern over higher inflation becoming embedded in expectations and downside risks to growth from global developments.”
She added: “While the Bank takes pains to emphasise that interest rates are not on a pre-set path, their central forecast has a further 50 basis points of cuts this year and a lower profile for inflation.
“Today’s split vote underlines the degree of uncertainty facing policymakers and re-emphasises the importance for the UK of reinforcing and amplifying its global relationships.”
The Bank of England is being forced into a “reactive and not a forward-looking” process of making decisions on interest rates, an economist has said.
Traders scaled back bets on the pace of interest rate cuts after the Monetary Policy Committee was split three ways, with two members voting for steeper cuts and two voting for rates to stay on hold.
Governor Andrew Bailey admitted he had not been briefed on the UK-US trade deal and repeatedly underlined the uncertainty created by American trade policy this year.
Gerard Lyons, chief economic strategist at Netwealth, said today’s rate cut “was expected and justified” given inflation is “likely to decelerate towards” the Bank of England’s 2pc target later this year.
He said: “The Bank sensibly outlined two different economic scenarios to reflect current risks. The 5-4 vote in favour with two members of the MPC voting for no change and two for a larger 0.5pc cut reflects the uncertainty ahead.
“The uncertain economic outlook means we are moving towards a reactive and not a forward-looking policy making process.
“Although rates are likely to fall again in August, they still need to settle at a much higher level after this phase of easing.”
Shadow chancellor Sir Mel Stride said interest rates remained high, blaming Labour for “economic mismanagement”.
Interest rates have fallen under Labour but Sir Mel hit out at Rachel Reeves’ policies, suggesting they had prevented more aggressive cuts.
“While we welcome this decision, which will provide some relief to families enduring ever-rising taxes under this Labour Government, interest rates remain high,” Sir Mel said.
“Labour’s economic mismanagement is keeping interest rates higher for longer, pushing up bills and subjecting working people to tax hikes, leaving families £3,500 worse off.
“Labour must put working people first and change course now.”
An expected rise in inflation later this year will provide the Bank of England with “fare less scope” to cut rates than the market has currently priced in, an economist has warned.
George Brown of asset manager Schroders said today’s decision came as a surprise to no one but inflation could ambush the market further down the line.
He said: “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.”
Mr Brown forecasts that the central bank would reach rates no lower than 4pc this rate-cutting cycle.
A deputy governor of the Bank of England signalled there is a chance it could announce faster interest rate cuts if trade uncertainty deepens.
Answering a question from our economics editor Szu Ping Chan, Clare Lombardelli policymakers would respond by “loosening policy” if Donald Trump’s trade war leads to “lower levels of activity, lower levels of inflation”, adding such a scenario was the Bank’s “central” forecast.
However, Governor Andrew Bailey cautioned that disruption to supply chains as a result of tariffs “because obviously the impact on inflation then is different”.
Ms Lombardelli said that in a world with low activity and low levels of inflation “you would expect monetary policymakers to respond to that if we were to see those sorts of things playing out”.
She said: “It is very much a scenario but you could motivate it by more trade policy uncertainty, [which] could be the driver.
“It would suggest monetary policymakers would respond to those things as you’d expect and that would mean by loosening policy.”
She added: “Throughout we’ve said that on inflation it is not clear that it would necessarily be the case that what we’ve seen on trade policy would lead be deflationary.
“It might and that is our central treatment that we’ve taken in the forecast and that’s perfectly reasonable.”
The Confederation of British Industry said tariff uncertainty could convince the Bank of England to be more cautious on rate cuts this year.
The lobby group warned that some of its members would favour a faster pace of cuts given looming disinflationary pressures.
Alpesh Paleja, deputy chief economist at the CBI, said: “The big question now is whether this gradualism will persist.
“Disinflationary risks have intensified over the last couple of months: US tariffs pose a fresh headwind to growth, global oil prices have fallen and, at home, the labour market is cooling.
“But heightened uncertainty could keep the MPC from easing off on the brakes too much.”
Mr Paleja said the sheer number of moving parts could cause the MPC to adopt a “cautious stance”, but warned that “with inflation risks increasingly tilting to the downside, a faster pace of rate cuts may become more palatable to a growing number of members.”
The Bank of England’s Governor welcomed news of a UK-US trade deal, which he said would help to reduce uncertainty.
Although Andrew Bailey said he had not been briefed on the content of any agreement, he said such a deal would be “excellent”.
Mr Bailey said Britain is a “very open economy” and as a result he hoped any deal announced today would be the first of many, as Britain is “affected by the way tariffs affect other economies”.
Tariffs “weigh on global activity”, Andrew Bailey has said, as he predicted weaker growth in the UK economy in the near term.
The Governor of the Bank of England said the overall impact of tariffs on inflation in Britain was uncertain.
Mr Bailey said Britain’s economic growth would likely be subdued before picking up later this year.
Andrew Bailey begins with good news. While headline inflation is expected to rise to 3.5pc in the coming months – well above the Bank’s 2pc target – this is expected to be “temporary”.
The Governor stresses that rising prices in the second half of this year will be driven by gas and electricity bills and “not directly linked to underlying cost pressures in the UK.
Bailey added: “We should not expect that to persist”.
Inflation is expected to fall back to the Bank’s target by the start of 2027.
Andrew Bailey said services inflation, a closely watched factor for the Bank of England’s interest rate decisions, was still coming down.
The Governor said that while levels “remain elevated” measures of underlying services inflation “have continued to diminish”
He said that persistent wage growth was the main driver of services inflation.
Andrew Bailey signalled there was more uncertainty to come on interest rates, which he said “cannot be” on “autopilot”.
The Governor of the Bank of England said the “global economic environment remains an uncertain one” but said the process of inflation falling in Britain “continues”.
The FTSE 100 held onto gains following the rate cut decision while the pound strengthened slightly.
The UK’s flagship stock index stood 30 points higher at 8589.3, up 0.4pc, while sterling edged 0.3pc higher to $1.333.
The pound was up 0.2pc against the euro at €1.177.
Chancellor Rachel Reeves welcomed the interest rate cut but acknowledged families are still facing a cost-of-living squeeze.
She said: “This interest rate cut is welcome news, and the fourth since we came into government making it cheaper for businesses to borrow, reducing the cost of a new mortgage, making homeownership more accessible, car finance more affordable and easing the pressure on those paying off personal loans.
“But there is more to do, and I know families are still facing cost-of-living pressures.
“In a changing world we’re bringing stability to the public finances and going further and faster to grow the economy, putting more money in the pockets of working people through our plan for change.”
Money markets reduced the chances on swift rate cuts by the Bank of England this year after policymakers were split on whether to lower borrowing costs.
Traders think there is just a 26pc chance of a rate cut in June after policymakers were split three ways on whether to cut interest rates, with two members voting for steeper cuts and two backing a hold in rates.
Derivatives trades had indicated a 58pc chance of a cut in June before today’s decision.
Traders still expect two more cuts this year but have pushed back expectations on timing to as late as September and November, compared to August and September before the Bank’s latest report.
Britain’s economy is expected to expand at a weaker pace over 2026 as the impact of tariffs on global trade takes its toll, according to new forecasts from the Bank of England.
However, policymakers said economic growth would be stronger than previously thought this year.
The projections show gross domestic product (GDP) will average at 1pc this year, marking an upgrade from the 0.75pc growth predicted in the Bank’s last report in February.
This is largely due to growth over the first three months of 2025 being higher than the Bank had previously anticipated.
But the forecast for 2026 has been downgraded to 1.25pc, from 1.5pc previously.
The Bank also cut its growth outlook for the world economy to 1.5pc in 2026, from 2pc previously, as new US tariffs and heightened uncertainty over global trade weigh on economic activity around the world.
The value of the pound jumped after the Bank of England’s policymakers were split three ways in their decision to cut interest rates.
Sterling was up 0.2pc to more than $1.33 after five members of the Monetary Policy Committee voted for a quarter of a point cut.
Two members, Catherine Mann and Huw Pill, voted for rates to be left unchanged, while Swati Dhingra and Alan Taylor backed a half a point reduction.
The Governor of the Bank of England said policymakers needed to stick to a “gradual and careful” approach to cutting interest rates.
Andrew Bailey said: “Inflationary pressures have continued to ease so we’ve been able to cut rates again today.
“The past few weeks have shown how unpredictable the global economy can be.
“That’s why we need to stick to a gradual and careful approach to further rate cuts. Ensuring low and stable inflation is our top priority.”
The Bank of England has cut interest rates after Donald Trump upended the world economy with his tariff war.
The Monetary Policy Committee said it had reduced the Bank Rate from 4.5pc to 4.25pc in its first meeting since the US president launched his “liberation day” assault on global trading partners.
It comes as inflation has fallen in recent months, with the consumer prices index (CPI) slowing to 2.6pc in March, from 2.8pc in February, according to the latest official data.
Rate setters have also updated their forecasts for the UK economy, although this will not include the impact of any trade deal expected to be announced between Britain and the US later today.
The FTSE 100 rallied in the run-up to the interest rates decision after Donald Trump said he was about to announce a “full and comprehensive” trade deal with Britain.
The UK’s flagship stock index was up 0.4pc while the mid-cap FTSE 250, which is more focused on the UK economy, gained 1.1pc.
The globally-focused FTSE 100 on Tuesday completed 16 straight days of gains, its longest winning streak on record, amid ptimism over easing global trade tensions.
The Bank of England is set to announce its May interest rate decision and latest economic forecasts, with markets widely expecting a quarter-point cut to 4.25pc.
Jeff Brummette, chief investment officer at Oakglen Wealth, said: “A base rate cut looks nailed on, but what will be most significant is the banks’ future guidance.”
On Wednesday, the US Federal Reserve kept its key interest rate on hold and said uncertainty about the economic outlook had increased with higher risks of a rise in both unemployment and inflation.
The Bank of England is likely to heed a warning from one of its rate setters about tariffs potentially bringing down inflation, an economist has said.
Megan Greene, a member of the Monetary Policy Committee (MPC), suggested last month that tariffs were likely to lead to inflation falling in the near term in the UK.
Anna Titareva of UBS said Ms Greene’s history of favouring higher interest rates made her assertion a key factor for the upcoming decision.
She said: “Megan Greene, one of the more hawkish MPC members, suggested that tariffs represent more of a disinflationary risk than an inflationary risk – a notable dovish shift.
“We expect this assessment to be shared by the broader MPC, given the sharp decline in energy prices, stronger sterling compared to the MPC’s February baseline, and the risk of a redirection of cheap imports from China and Southeast Asia.
“While the MPC is still likely to stress persistence in services inflation, we expect it to acknowledge the newly emerged disinflationary pressures.”
Titareva expects a quarter of a point rate cut today, followed by two further cuts of the same size this year.
The Bank of England will be much clearer in spelling out the disinflationary impact of tariffs, an economist has said.
Jack Meaning of Barclays agreed with forecasts that the Monetary Policy Committee (MPC) will cut rates from 4.5pc to 4.25pc.
He expects just Swati Dhingra to vote for a larger half a point cut, with guidance to signal that tariffs will hit growth and bring down inflation.
He said: “Sterling is up on a trade-weighted basis, the UK government is reducing tariffs on imports and supply chain pressure indices have yet to show any signs of deterioration in the first three months of the year.”
He added: “As such, we expect the MPC to be much clearer that the impact of tariffs will be disinflationary.”
The Bank of England could cut interest rates further than expected amid declining services inflation and a weakening economy, an analyst has said.
Money markets indicate borrowing costs will be reduced three times this year with an 89pc chance of a fourth cut by the end of 2025. Traders expect rates to settle at about 3.5pc within a year.
The Bank’s next decision comes a day after the US Federal Reserve held interest rates at 4.25pc to 4.5pc, while the European Central Bank cut rates last month to 2.25pc.
Saxo UK analyst Neil Wilson said closely watched services inflation “should materially fall in the coming months” while a stronger pound and lower oil prices could reduce the pace of price rises overall.
Mr Wilson said: “Why should Britain have rates at 4.5pc, the same as the US and double the 2.25pc in the euro area, given the risks to growth and the pressure on the economy that is so self-evident?
“In short, while the Bank of England could be a touch slower than expected, it could ultimately end up lower than the market thinks for this cycle.”
Andrew Bailey will set out his expectations for Britain’s economy at a press conference after the Bank of England announces its next interest rate decision.
Policymakers had previously forecast that inflation in the UK would peak at around 3.7pc by the third quarter of this year before tailing off.
However, analysts think Donald Trump’s tariff war is expected to lower inflation and growth in the coming months.
Rory McPherson, chief investment officer at Wren Sterling, said: “More interesting will be the press conference from Governor Bailey and his thoughts around future cuts.
“We see there as being a short window where inflation stays fairly low (sub 3pc) to make further cuts before the summer.
“This would boost the economy, boost the housing market and help the more cyclical parts of the stock market.
“Furthermore, the dollar weakness has given a welcome cushion to future inflation (to help offset the utility bill rises) which should pave the way for cuts. We expect a rate cut today and then three further cuts this year.”
The Bank of England could open the door to more rate cuts later this year when it announces its next decision at midday.
Economists think the Monetary Policy Committee (MPC) will lower their growth forecasts in light of the US tariff turmoil, although any projections will not include the impact of a trade deal between the UK and US expected to be announced later today.
Money markets indicate policymakers will cut interest rates at least three more times this year, which an 89pc chance of a fourth reduction.
Michael Brown, an analyst at Pepperstone, said: “The MPC are also likely to open the door to a faster pace of policy easing, most likely by tweaking guidance that further cuts will take place at a ‘gradual and careful’ pace, and that policy must ‘remain restrictive for sufficiently long’ in order to bear down on the risk of persistent price pressures becoming embedded.”
Will Hobbs of Barclays Private Bank added: “The uncertainty created by the US tariffs will certainly have some dampening effect.
“However, there are potential offsets in the form of lower energy prices and the dramatic changes happening in Europe. The latest read on inflation suggests a little more flexibility for the Bank of England too, ahead of today’s decision.”
Norway’s central bank kept interest rates on hold at a 17-year high of 4.5pc today as predicted.
However, the Norges Bank said it expects to begin cutting interest rates this year.
Deputy Governor Paal Longva said: “The committee’s current assessment of the outlook implies that the policy rate will most likely be reduced in the course of 2025.
The Norwegian crown strengthened slightly to 11.70 against the euro, from 11.72 just before the announcement.
The cost of government borrowing has edged lower ahead of an expected cut to interest rates by the Bank of England.
The yield on 10-year UK gilts – a benchmark for the cost of servicing the national debt – fell the most among major European economies in early trading on bond markets to 4.44pc.
Eurozone government bond yields edged higher after the US Federal Reserve warned about the risks of higher inflation and unemployment.
Germany’s 10-year yield, the euro area’s benchmark, rose 1 basis points to 2.48pc.
The average UK house price increased by nearly £900 between March and April, a closely watched survey showed, ahead of the expected cut to interest rates by the Bank of England.
Property values increased 0.3pc month-on-month, following a 0.5pc monthly fall in March, according to the Halifax house price index.
The annual house price growth rate ticked up to 3.2pc in April, from 2.9pc in March, taking the average property price to £297,781.
Amanda Bryden, head of mortgages, Halifax, said highlighted the end of the stamp duty exemption at the start of April, which had seen many buyers race to complete deals before the end of March.
She said: “We know the stamp duty changes prompted a surge in transactions in the early part of this year, as buyers rushed to beat the tax-rise deadline.
“However, this didn’t lead to a significant increase in property prices, with the last six months characterised by a stability in prices rarely seen since the pandemic.”
Halifax’s figures are in contrast to Nationwide Building Society’s latest house price index, released last week.
Nationwide reported that house price growth had softened, with prices dipping by 0.6pc month on month in April and price growth also slowing on an annual basis, at 3.4pc in April, down from 3.9pc in March.
The FTSE 100 rose ahead of the Bank of England’s interest rate decision, with markets also buoyed by the expected announcement of a trade deal between Britain and the US.
The UK’s flagship stock market was up 0.1pc after the open to 8,564.64 as Downing Street confirmed the Prime Minister would make an announcement regarding UK-US talks later today.
The mid-cap FTSE 250, which is more focused on the UK economy, rose 0.5pc to 20,429.00.
The Bank of England is poised to cut interest rates as the threat of an escalating global trade war looms and the economic growth outlook worsens.
Most economists think UK interest rates will be reduced to 4.25pc from their current level of 4.5pc today.
Analysts said some members of the central bank’s Monetary Policy Committee (MPC) could push for a larger 0.5 percentage point cut in a bid to reduce borrowing costs further and ease pressure on households and businesses.
It will be the first time the MPC has met to decide monetary policy since Donald Trump’s “liberation day” tariff announcements last month.
The decision, along with quarterly economic forecasts, will be delayed by two minutes to honour the silence to mark the 80th anniversary of VE Day – meaning it will be published at 12.02pm, rather than noon.
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