(qlmbusinessnews.com . Fri 7th Feb, 2025) London, UK —
Bank of England Cuts Interest Rates and Downgrades Growth Forecast Amid Economic Challenges
The Bank of England has reduced its base interest rate to 4.5%, the lowest level in over 18 months, and slashed its growth forecast for 2025. The UK economy is now projected to expand by just 0.75%, a significant downgrade from the previous estimate of 1.5%.
This announcement comes as the government faces mounting pressure to revitalise the economy. Prime Minister Sir Keir Starmer expressed dissatisfaction with the latest figures, stating they “spur us on” to prioritise growth initiatives.
Interest Rate Cut and Inflation Warnings
Bank of England Governor Andrew Bailey said the central bank remains on a “downward path” with interest rates but emphasised the need for a cautious approach due to economic uncertainty and the risk of rising inflation.
“We live in an uncertain world, and the road ahead will have bumps on it,” Mr Bailey said.
Inflation, currently a significant concern, is forecasted to rise to 3.7% later this year due to factors such as increased energy and water bills. The Bank does not expect inflation to fall back to its 2% target until the end of 2027.
Despite the bleak short-term forecast, the Bank revised its growth predictions upwards for 2026 and 2027, projecting a 1.5% expansion for both years.
Economic Impact and Mortgage Relief
The interest rate cut is expected to provide relief to the 629,000 homeowners on tracker mortgage deals, who will see a typical monthly repayment reduction of £29. Standard variable rate mortgage holders may also benefit if lenders adjust their rates.
However, the news is less positive for savers, who are likely to see reduced returns.
Nicola Price, a homeowner with 18 months left on her mortgage, welcomed the rate cut as it could lead to lower repayments when her current deal ends. However, she acknowledged the challenges it presents for her parents, who rely heavily on savings interest.
Economic Criticism and Government Response
The Bank’s downgraded growth forecast has sparked criticism from economic experts and political figures. Paul Johnson, director of the Institute for Fiscal Studies, described the revision as “very worrying” and warned that it could create fiscal challenges for the government.
“If the Office for Budget Responsibility aligns its forecast with the Bank's, the chancellor is in big trouble,” Mr Johnson said, suggesting tax revenues may fall short of expectations, prompting difficult spending and tax decisions.
Shadow Chancellor Mel Stride welcomed the rate cut but blamed the government's “disastrous Budget” for limiting the Bank's ability to reduce rates further this year.
Sir Keir Starmer pledged that the government would prioritise economic growth through infrastructure investments and strategic decisions in planning and nuclear energy.
As economic uncertainty continues, all eyes are on the Bank of England's next moves and how the government responds to the mounting fiscal and economic pressures.
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