Bank of England cuts interest rates by 0.25% in three-way vote

The Bank of England's Monetary Policy Committee has voted 5-4 to reduce Bank Rate to 4.25%.

Two members preferred to reduce Bank Rate by 0.5%, to 4%, while two members preferred to maintain Bank Rate at 4.5%.

The MPC noted that "uncertainty surrounding global trade policies has intensified since the imposition of tariffs by the United States and the measures taken in response by some of its trading partners". 

In its minutes, the Committee said: "There has subsequently been volatility in financial markets, and market-implied policy rates have moved lower. Prospects for global growth have weakened as a result of this uncertainty and new tariff announcements, although the negative impacts on UK growth and inflation are likely to be smaller."

This is the first reduction in Bank Rate since February and was widely expected after CPI inflation came in 0.1% below expectations at 2.6% in March – down from 2.8% in February and 3% in January. 

Like the MPC, industry experts were split on today's decision, with some stating that the Bank struck the balance right and others believing it missed an opportunity to be bold and cut by 0.5%.

Patrick O'Donnell, senior investment strategist at Omnis Investments, noted that the "median economist estimate was for 8 members to vote for a 25bps move and 1 member to vote for 50bps", adding that the actual voting split today "had a more dovish skew" which will help UK markets. 

Peter Stimson, head of product at MPowered, said "the fact that this time two members wanted to hold interest rates at 4.5% is a puzzle".

Adam Ruddle, chief investment officer at LV=, stated that the 0.5% reduction could signal a series of rate cuts, with interest rates anticipated to fall to 3.5% by year-end, but stressed that "this is very dependent on the path of US trade policies and any trade agreements agreed".

Paresh Raja, CEO of Market Financial Solutions, commented: "The markets inked in this base rate cut several weeks ago, with many lenders having already dropped rates over the past fortnight. As a result, today's decision might be met with a somewhat muted response. But we should be careful not to take another 0.25% reduction for granted; rates are trending in the right direction and borrowers will welcome every cut.

"With more rate cuts expected in the months to come, some property buyers and investors might decide to bide their time. But there's an overwhelming sense that demand is returning to the market thanks to the increasingly favourable interest rate environment. Coupled with the usual seasonal trends we see, we're expecting the summer months to be a busy period, and the focus from lenders has to be on fast, decisive action - giving brokers and borrowers clarity on product availability and rates, along with prompt decisions on applications, will be crucial in allowing the market to flourish."

Tim Parkes, CEO of RAW Capital Partners, said: "The only real question today was seemingly whether the Bank of England would be so bold as to vote for a 0.50% reduction. For now, the Bank is clearly sticking to a conservative strategy and, while there is pressure for more significant cuts, the broader expectation is still that there could be as many as four more base rate cuts from the Bank's five remaining meetings this year.

"We are on the right path, even if the speed of travel is not fast enough for some. The base rate is now a full percentage point lower than the recent 5.25% peak we saw for much of 2023 and 2024. If indeed the base rate does continue to fall to 3.5% or even 3.25% by the end of this year, it will likely encourage many more property buyers and investors to enter the UK property market. Transactional activity and house prices could both see an uplift as a result, particularly as mortgage lenders reprice their products to reflect the medium-term predictions of a steadily falling base rate."

Paul Noble, CEO of Chetwood Bank, added: "Following a second consecutive fall in inflation, many were expecting a bolder move from the Bank of England. The decision to cut rates by 0.25% rather than half a percentage point might appear underwhelming to some, given the challenges that are being faced – especially the uncertainty around Trump’s tariff hikes.
 
“While the central bank has taken a cautious approach for some time, today’s move could risk underutilising a vital opportunity to restore confidence and stimulate growth in the market. That will come from the MPC making bold, market-altering decisions at its monthly meetings, rather than smaller, potentially less impactful changes that fail to make the most of our current inflationary improvements."