Why the Bank of England is cutting interest rates

The Bank of England has cut interest rates for the third time since the inflation crisis, taking the base rate to 4.5 per cent. The Monetary Policy Committee voted by seven to two to further reduce rates by 0.25 percentage points – a move that was widely expected by markets, but had been put into doubt after government borrowing costs surged in January and President Donald Trump announced his plans for substantial tariffs last week.

Even so, the MPC pushed ahead – interestingly with no one on the committee voting to hold rates at 4.75 per cent (two members voted instead for a 0.5 percentage point cut). It’s clear from the Bank’s report that the MPC is increasingly focused on how higher rates have taken their toll on economic growth, noting that ‘GDP growth has been weaker than expected at the time of the November Monetary Policy Report, and indicators of business and consumer confidence have declined’.