The Bank of England (BoE) has cut interest rates from 4.75% to 4.5% in its first decision on the base rate in 2025.

It marks the third cut to the base rate since the central bank started to bring interest rates down last August from a peak of 5.25%.

At its latest meeting, the BoE’s Monetary Policy Committee (MPC) voted by a majority of seven to two to reduce the base rate by 0.25 percentage points, to 4.5%. Two MPC members were in favour of a 0.5 percentage point reduction, to 4.25%.

In the MPC’s report published today, it noted that CPI inflation was 2.5% in Q4 2024, and that there had been “sufficient progress on disinflation” in domestic prices and wages to bring the base rate down.

The latest decision by the BoE to reduce rates has followed two recent cuts, in August and November, which were the first reductions since the onset of the COVID pandemic in March 2020.

Prior to these cuts, the BoE had increased its base rate from a record low of 0.1% during the pandemic at 14 successive MPC meetings between December 2021 and August 2023, which took interest rates to their recent 5.25% peak.

Reacting to the latest cut, global head of macro and dynamic asset allocation at Mercer, Rupert Watson, said: “The move comes against a backdrop of the falling value of sterling and the gilt fluctuation seen earlier in the year.

“The UK economy faces persistent challenges of weaker growth, elevated wages, and sticky inflation. This latest move suggests BoE thinks rates do not need to be so high to meet its inflation target and can now begin to come down. We expect that there will be further rate cuts later in the year and next.”

Investment strategist at Quilter Investors, Lindsay James, added: “The UK’s issue with productivity and growth will not be solved overnight, however, and as such the Government must rely on the BoE to stimulate the economy. But, this all takes time to feed through and thus all adds up to the most likely outcome being yet more low, anaemic, growth rather than recession.

“For investors, this situation does present somewhat of a silver lining. With expectations already so low, UK equities, which have outshone the returns from the US year to date, continue to earn their place in portfolios.”

The BoE’s next base rate announcement is due on 20 March.

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