In a widely anticipated move, the Bank of England’s Monetary Policy Committee (MPC) has today reduced the UK’s key interest rate from 4.75% to 4.5%, amid concerns over slowing economic growth.
Markets are now pricing in further quarter-point cuts throughout 2025. However, investors are closely watching the Bank’s updated GDP forecast for the year ahead, which could shape expectations for monetary policy and economic performance. The FTSE 100 hit an all-time high this morning, in anticipation of the interest rate decision.
Leading investment strategists, economists, and fund managers have shared their insights on today’s rate decision as follows:
James Carter, Portfolio Manager at Waverton Investment Management said:
“Since the better-than-expected CPI print in mid-January, markets had been pricing in an all-but-certain rate cut from the Bank of England, which has now been delivered. One can only imagine the sigh of relief coming from Downing Street upon receiving the news which, along with Gilt yields trending back downwards, gives Rachel Reeves some much-needed breathing room ahead of the March budget. With the labour market continuing to cool, we see scope for the Bank of England to shift its focus from inflation to growth and exceed market expectations on rate cuts this year, delivering at least one per quarter. This should provide a much-needed tailwind for the economy, the government, and Gilts after a bruising end to 2024.”
Garry White, Chief Investment Commentator at Charles Stanley, said:
“In the coming months, Donald Trump is likely to help the FTSE 100 hit a series of new all-time highs. The FTSE 100 index reached a record ahead of the Bank of England’s widely expected decision to cut interest rates by 25 basis points today. The continuing divergence of major central bank policy in coming months means there could be many more such records ahead. A weak pound is positive for Britain’s blue-chip index, as the majority of earnings generated by constituent companies are generated abroad. These earnings are flattered once translated into sterling.
“Bank of England policy makers said today that they expect to make monetary policy less restrictive as the year progresses – and cut interest rates further. This means the Bank of England and European Central Bank are relatively dovish, as the US Federal Reserve is perceived to be more hawkish. Fewer interest-rate cuts are expected across the Atlantic in 2025, as many of Donald Trump’s policies appear to be inflationary. These include tariffs, which are likely to be paid for by consumers, the deportation of undocumented migrants, which will increase the scarcity of low-skilled workers, and the extension of tax cuts for businesses and individuals. The dollar has already seen a period of relative strength, but central bank policies are likely to continue to provide support. The currency’s safe-haven status amid tariff confusion means dollar strength is likely to persist in the early part of 2025. The relative weakness of the pound will therefore remain a tailwind for the FTSE 100.”
William Marshall, Chief Investment Officer – Hymans Robertson Investment Services (HRIS), said:
“The Bank of England may have cut interest rates today, but they will continue to move cautiously going forward and cut slowly. The uncertainty for the BoE has been exacerbated by potential impacts from last October’s Budget as well as unreliable labour market data from the ONS.
“The NI increases announced at the Budget may lead to businesses pushing up prices. Economic growth has stalled in the UK since last Summer but the significant increase in government spending announced in the Budget should more-than-offset the NI increase and bring about a recovery, adding further to inflationary pressures.
“The official unemployment data, as recognised by the ONS, is too dodgy to rely on. On the one hand, data shows wage growth is accelerating, and this is before the new minimum wage comes into effect. However, business surveys show firms are cutting jobs at the fastest pace since 2009, excluding the pandemic. This cloud of uncertainty is likely to lead to continued caution from the BoE. We expect the BoE to cut once a quarter until the summer, when there should be greater clarity in the data.“
Ed Monk, associate director at Fidelity International, said:
“Today’s MPC decision signals a renewed appetite for lower rates at the Bank of England, with all nine members voting to cut and two members even pushing for a half-point reduction in rates. That will be welcome news for households who have been suffering higher borrowing costs, but also the Government.
“The Chancellor will welcome monetary loosening to help growth ambitions; rates which stay higher for longer could also prompt the Treasury to rethink plans for the upcoming Spring forecast. While lower rates are welcome, it may be a worsening of economic conditions which have prompted the Bank to act. The MPC minutes highlight declines in a number of indicators, and a deterioration of demand in particular; that’s helpful for lowering inflation but suggests the economy may be running out of steam.
“Market expectations for interest rates have been moving lower, with forward bond prices ahead of today’s decision predicting rates will dip below 4% by the end of 2025. That suggests at least two more quarter-point cuts this year.“
Patrick O’Donnell, Senior Investment Strategist, Omnis Investments, said:
“The Bank cut interest rates as expected today. It’ll be interesting to see what Bailey says in the press conference but really the MPC remains in the difficult position. Uncertainty remains high, inflation remains above target, and forecasted to stay there near-term, but recent survey data shows that employment and growth data are soft. BoE models will project that more rate cuts are required to prevent a significant rise in unemployment and an inflation undershoot. In our view, the risks are tilted to more rate cuts being delivered than what is currently priced. However, the primary driver of markets in the near-term is going to be policy announcements and social media posts coming from the other side of the pond.“
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services, said:
“Ebbing inflationary pressures and persistent economic weakness underlie today’s decision by the Monetary Policy Committee to cut the base rate by a further 0.25%-points to 4.5%. While hard-pressed consumers and businesses will welcome lower rates, the decision comes in response to a sluggish economy – the same which made the Bank of England cut its Q4 GDP growth forecast to zero at its December meeting.
“Since the turn of the year, forward-looking business surveys indicate the economy will follow this slow pace into 2025, impacted by looming uncertainty around potential tariffs levied by the US under the new presidential administration. The combination of weak economic activity and decelerating service sector prices will impart downward pressure on inflation. In contrast, wage growth strength hints at supply-related issues which may take longer to resolve. Given that today’s monetary policy adjustment will have a lagged effect on the economy, time will tell how further rate decisions might play out this year.”
Lindsay James, investment strategist at Quilter Investors, said:
“In a sign that the UK economy is looking increasingly fragile, even as inflation remains at palatable levels, the Bank of England has responded by lowering interest rates to 4.5%. The BoE’s prediction that inflation peaks at 3.7% in Q3 this year is quite shocking given previous forecasts and certainly won’t be helped by the April hike in minimum wages or higher National Insurance contributions on employers. So much so the previously expected pickup in growth this year is quickly becoming wishful thinking, however this remains the Bank’s key focus. Hiring has remaining subdued, whilst data from the service economy has highlighted that the pace of job cuts has accelerated to its fastest in four years as wage growth continues to outpace inflation.
“With supply chains passing on employment cost increases to the end customer, this is likely to put upward pressure on inflation in the coming months but will also put profit margins under pressure as consumers are likely to resist paying more. Whilst the economic picture has undeniably worsened in recent months, so too pockets of optimism remain. With wage growth so strong but sentiment weak, consumers have been rebuilding savings that will at some point be released into the economy, whilst the housing market continues to look resilient and further support will come from the two or three quarter point cuts to the base rate expected by the end of the year.
“The UK’s issue with productivity and growth will not be solved overnight, however, and as such the government must rely on the Bank of England 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.”
Zara Nokes, Global Market Analyst at J.P. Morgan Asset Management (JPMAM), said:
“With December’s softer-than-expected inflation print having fuelled market expectations for a cut, the Bank of England likely felt it had no other choice today. The distribution of votes showed high conviction in the call, yet this approach is not without risks. While economic activity is clearly slowing, inflation pressures are not. Inflation expectations have picked up as a result of higher energy prices, strong wage growth and businesses signalling that they intend to charge higher prices in response to October’s tax hike.
“The growth outlook might also not be as bad as business surveys suggest, with the large increase to public services spending announced in the Autumn Budget likely to provide a tailwind to growth this year, offsetting some of the private sector weakness. Against this backdrop, the Bank must be resolute in its commitment to bring inflation back to target. Rate cuts might be popular in the short term but, ultimately, there will be a higher price to pay further down the line if inflation is not stamped out now.”
Luke Bartholomew, Deputy Chief Economist at abrdn, said:
“The decision to cut rates today was widely anticipated. But the fact that two MPC members voted to deliver a bumper 50bps cut, despite revising up near term inflation forecasts, gives a sense of how concerned some policymakers are about the headwinds to growth. It is hard to see the Bank of England materially stepping up its pace of easing until it sees how the increase in National Insurance is digested by the economy in the spring. However, the Bank’s signals today suggest there is scope for several more rate cuts this year, given the weak growth outlook, and we continue to see rates below 3% over the next two years.”
Professor Sarwar Khawaja FRSA, Chairman, Executive Board, Oxford Business College, said:
“This is a glimmer of hope for businesses and consumers alike, but there’s still an awful lot of tunnel before we get to the light. This rate cut should provide some relief to businesses grappling with high borrowing costs, and could free up capital for investment and growth. For our students and recent graduates venturing into entrepreneurship, this could create a more favourable environment to launch and scale their ventures.
“But this decision comes against a backdrop of persistent economic challenges. While inflation has shown signs of easing, it remains above the Bank’s target, and risk of reigniting inflationary pressures cannot be ignored. Lower borrowing costs would normally encourage businesses to expand, but given that this move is a response to weakening economic conditions, the more cautious approach to hiring is likely to be made worse.
“This rate cut underscores the need for businesses to remain agile, leveraging periods of lower borrowing costs while preparing for potential future volatility. While this decision offers some breathing room, it’s clear that the UK economy still faces significant headwinds. Businesses and policymakers alike must work to convert this monetary stimulus into sustainable, long-term growth.”
Susannah Streeter, head of money and markets, Hargreaves Lansdown, said:
“The Bank’s decision has added to the feel-good factor for the Footsie, with investors reassured that policymakers stuck to the expect script and cut interest rates with more expected this year. The index surged to fresh record highs, as the falling pound buoyed multinationals with overseas earnings. A sigh of relief is greeting this rate cut given how long painful borrowing costs have lingered, but the move and the outlook from the Bank underlines the challenges facing the UK.
“The risks of stagflation are stark. Inflation remains above the Bank’s 2% target and price pressures piling up, but the economy is stagnating, and business confidence has taken a knock. The vote was resoundingly for a cut, with two members wanting to go even further pushing for a 0.5% reduction. This has increased expectations that further rate cuts will come more quickly this year with markets now pricing in the likelihood that the base rate will be close to 3.75% by December, indicating three further reductions. That’s been reflected in the movement of the sterling, which has continued to fall back against the dollar.
“The Bank has slashed its forecast for growth this year, which keeps the door wide open for multiple rate cuts to come. Other data out this week shows that job cuts are landed at the steepest pace in four years in the services sector and the activity in the construction sector contracted unexpectedly in January for the first time in a year. Given the deteriorating economic picture, financial markets are now expecting at least two maybe three further interest rate cuts this year, with the base rate likely to drop below 4% by 2025. The speed will depend on how the economy responds in the months to come. Businesses are already feeling the pain of upcoming changes to National Insurance contributions, as with suppliers starting to pass on the costs of higher expected wage bills.
“How all this will land in terms of consumer prices and demand for goods and services in the economy is not yet clear. The threat of Trump’s tariffs also clouds the picture. A knock to global trade could stymie growth further, and although the dominance of services in US exports should offer insulation, and the UK could even potentially benefit as trade flows shift and investors seek safer tariff-free havens. So, while there still may be a pause for thought in March, with further cuts looking more likely once summer arrives.”
Daniele Antonucci, Chief Investment Officer of Quintet Private Bank (the parent of Brown Shipley), said:
“That the Bank of England cut interest rates today isn’t surprising. This is only the third since it started lowering borrowing costs from a 14-year high in August last year, and leaves the key policy rate among the highest across the major advanced economies. After all, UK economic growth is weak, a stark contrast relative to the robust pace of expansion of the US. The Bank has halved its forecast for growth this year to 0.75%, reflecting weak business and consumer sentiment and more sluggish productivity growth.
“Given divergent economic trajectories, the Bank of England has more incentive to cut in the near term than its US counterpart and will likely reduce rates at a faster pace as inflation normalises. We expect the UK to lag the US, with the risk of trade tariffs, especially to key trading partners such as the European Union, creating a headwind for growth, which we expect to stay subdued. This divergence in growth suggests a weak sterling in the near term.
“While we continue to overweight US equities, we’ve recently adjusted our European equity exposure lower, to neutral, given downside risks such as higher tariffs, while maintaining our ‘insurance’ instrument which appreciates when European equities decline. We also have a neutral exposure to UK equities, in line with our long-term asset allocation. At the turn of the year, we’ve increased our exposure to gilts, preferring short-dated ones. They’re attractively valued and should benefit from rate cuts as well as slower growth, partially protecting portfolios if the economy was to underperform expectations.“
Daniela Hathorn, Senior Market Analyst at Capital.com, said:
“The Bank of England has cut rates by 25 basis points as widely expected. The vote split showed all nine MPC members were in favour of cutting rates in February, suggesting the central bank is more confident in its attempt at normalising their policy rates given the softening in inflationary pressures. There were two MPC members who voted to go further and cut rates by 50 bps at this meeting. Dhingra should not be a surprise as she has been a long-term dove within the central bank, but Catherine Mann’s vote seems slightly unexpected. This has given the meeting more of a dovish tone, leading markets to bring forward the expectations on when the next rate cut will be, from June to May.
“This repricing in expectations has caused the Uk gilt yields to drop alongside the pound. GBP/USD has retraced some of the gains achieved earlier this week as the more dovish BoE further widens the yield differential between the US and the UK. Meanwhile, UK stocks are taking advantage of the increased odds of more rate cuts with the FTSE 100 delivering another strong performance and breaking a to a new all-time high.
“The messaging surrounding the decision hasn’t changed much. The central bank still sees a “gradual” approach towards cutting rates, making sure that they remain “sufficiently restrictive”. An addition to the press release has been the fact that the approach is now not only “gradual” but also “careful”. This addition is likely as a precautionary measure given how the increase in trade tensions given Trump’s tariff threats could have a negative impact on global economies, potentially causing a short-term spike in inflation and weakening growth. If so, central banks will have to be even more careful with their policy decisions in an attempt to balance growth and inflation in order to avoid a stagflationary environment.”
Katharine Neiss, Chief European Economist at PGIM Fixed Income, said:
“UK economic activity has been deteriorating since early last year. Quarter-on-quarter, GDP growth has cooled notably over the course of last year to zero in Q3. We expect growth to come in again close to zero in Q4. Given the weak backdrop, the market had already priced in a 25bp cut for the Bank of England (BoE) meeting today. The key question is where next from here for UK rates.
“Despite today’s rate cut, UK rates at 4.5% remain significantly higher relative to peers, particularly in Europe. However, given continued strength in wage rises, firms’ input costs, and rising energy prices, we continue to expect the BoE to cut rates in a limited and gradual fashion for the foreseeable future. Another factor likely weighing on the BoE’s rate decision is the continued vulnerability of UK assets to shifts in market sentiment.
“Given those vulnerabilities, aggressive rate cuts in the near future could prove to be a false economy if they trigger capital outflows and further leg up in longer-term yields. For now, we view the BoE to be on a cautious cutting path. That said, given the limited cuts to date, and in contrast to, for example, the US, we see more cuts ahead for the BoE than behind it.“
Tim Graf, Head of EMEA Macro Strategy, State Street Global Markets, said:
“The Bank of England surprised no one in cutting rates 25bps. More noteworthy was the dovish tilt of the Committee, particularly the switch of Catherine Mann from one of its most hawkish members to one of its most dovish, in her vote for a 50bps cut. Our online inflation metrics suggest freedom to ease on a more regular basis going forward, but the sharp upward revisions to inflation for this year, as well as commentary that the range for neutral rates has risen, suggest further easing will be in line with the stated preference for ‘gradual and careful’ adjustments to the policy rate.“
Jamie Niven, Senior Fixed Income Fund Manager, at Candriam, said:
“Today’s 25bps cut, although priced by the market beforehand, was not all in line with expectations as the split of the committee votes was certainly on the dovish side of the ledger. Most commentators assumed Catherine Mann, as recently the most hawkish member of the committee, would vote against the 25bps cut but remarkably she was one of two members who instead pushed for an even larger 50bps move. However, there is something for the hawks as well with the inflation forecast still above target in 2027.
“Compared to November MPC forecasts, near term growth was revised lower but inflation higher and indeed sustainably higher. This mixed picture is a slightly awkward place for the Bank to be in. Having been firm believers that the market was under-pricing the prospects for BoE cuts this year, we have now seen somewhat of a reassessment but still think the terminal rate pricing is likely too high. Further progress on inflation will be the key as to whether there is an acceleration in the quarterly cuts to support anaemic growth.“
Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner, said:
“On the back of lower growth forecasts, the Bank of England cut the benchmark rates by 25bps to 4.5%, its third rate cut in six months, with two of the rate setters advocating a steeper 50bps cut. The growth forecasts for the UK have been pared back to just 0.75% from 1.5% this year by the central bank. In addition, the bank also warned that inflation could reach a fresh peak of 3.7%, putting the 2% target out of reach.
“While the markets are estimating the possibility of four rate cuts this year, there is a sense that that would be premature, as inflation has proved stickier than expected. Given US trade policies around tariffs as well as perceived inflationary influence of the current Budget, the fight against inflation seems far from over.
“Given the possibility of the UK entering stagflation, pursuing growth at the cost of inflation seems to be the preferred option for the central bank, not to mention the incumbent government. As the uncertainty around the future of growth in the UK increases, policymakers face a dwindling number of options to stimulate economic growth.”
