The Bank of England, on May 8, cut the UK’s main interest rates by 25% from 4.5% to 4.25%. It is the Bank of England’s fourth rate cut since August 2025.
The UK’s central bank cited lower inflation, lacklustre economic growth, and uncertainty about President Trump’s trade tariffs.
According to the bank’s governor, “uncertainty surrounding global trade policies has intensified” since US President Donald Trump’s tariffs ignited a trade war in recent weeks.
As such, the bank has indicated more rate cuts could occur in the coming months..
The rate cut occurred ahead of an expected trade deal between the US and the UK. On the same day, the UK and US announced a deal to avoid tariffs on certain goods, which will boost trade.
Though most tariffs, including the 10% baseline tariff applied to UK goods entering the US, were paused for 90 days following the ensuing market turmoil, the backdrop for the global economy remains highly uncertain.
Since the Bank of England began cutting interest rates in August 2024 from the 16-year high of 5.25%, the bank has been consistent in lowering borrowing costs every three months.
| Date | Decision | Rate | Key Reasons |
| Aug 2024 | Cut -0.25% | 5.00% | Falling Inflation easing labour markets, geopolitical tensions (Middle East, Red Sea shipping disruption), weak GDP |
| Nov 2024 | Cut -0.25% | 4.75% | Slowdown in wage growth, weak economic & business sentiment |
| Feb 2025 | Cut -0.25% | 4.50% | Inflation at 3.2% |
| Mar 2025 | Held | 4.50% | Inflation easing, US tariffs |
| May 2025 | Cut-0.25% | 4.25% | Inflation down to ~2%, consumer and mortgage pressures rising, global trade tensions affecting UK’s economic outlook (Q1 GDP weak at 0.1%) |
Read: China’s Central Bank Cuts Interest Rates Amid US Tariffs
The Bank of England meeting minutes showed a divided committee.
President Trump’s tariffs on UK goods and the potential of an escalating US-China trade war are leading to significant uncertainty in global trade dynamics. US reciprocal tariffs prompted the International Monetary Fund to cut its global growth forecasts.
Fortunately, as part of the UK-US trade deal, the US plans to scrap the 25% tariffs on UK steel. In addition, the US will lower tariffs on UK cars from 27.5% to 10%.
The BoE estimates that US tariffs would lower UK economic growth. As such, the Bank expects the UK economy to grow this year by 1%, slightly higher than February’s forecast of 0.75%. Therefore, by slashing rates to 4.25%, the UK wants to stimulate consumer spending and boost bank lending.
The most recent UK inflation figures show prices at 2.6% in the year to March.
However, the rate is expected to surge following household bill increases at the start of April, including energy & water bills.
Inflation rates worldwide are way down from 2023 levels. This is because global central banks hike rates from the near-zero rates seen during the coronavirus pandemic.
Central banks, including the European Central Bank, have slashed interest rates as inflation rates have declined from multidecade highs.
Several economists think rates will fall back to the super-low levels that prevailed during the 2008-2009 global financial crisis and COVID pandemic.
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