Bank of England cuts interest rates to 4% amid weak growth concerns

The Bank of England has cut interest rates to 4% in a bid to support the UK’s faltering economy, lowering the Bank Rate by 0.25 percentage points from 4.25%.

The Monetary Policy Committee (MPC) voted by a narrow margin of 5–4 to make the reduction, marking the fifth rate cut since August last year, when rates began falling from a peak of 5.25%.

In its decision statement, the Bank noted that “substantial disinflation” over the past two and a half years had created room to ease policy, though it stressed it remains focused on returning inflation sustainably to its 2% target. Twelve-month CPI inflation rose to 3.5% in the second quarter of 2025 due to higher energy, food, and administered prices, and is forecast to peak at 4% in September before falling back.

The Bank acknowledged that pay growth remains high, though it has slowed in recent months, and that underlying UK GDP growth remains subdued. It also cautioned that the recent easing in monetary policy does not mark the start of a pre-set path for rate cuts.

Business leaders broadly welcomed the move.

Mike Randall, CEO at Simply Asset Finance, said: “As rates are knocked down another notch and with a further cut expected later this year, business leaders will undoubtedly be feeling more room to breathe – easing borrowing costs for those eager to invest in their growth this year.

“However, falling interest rates are just one metric reflecting overall business confidence and the ability to invest for the year ahead. With limited GDP growth this year, and tax rises mooted in the impending Autumn Budget, economic recovery could still be fragile if left to stagnate.”

Neil Rudge, Chief Banking Officer for Commercial, called the cut “welcome news” for business owners: “After an extended period of high borrowing costs, it offers a bit of breathing space – and perhaps a signal that conditions may start to ease. The first half of the year hasn’t been easy… While a rate cut won’t transform things overnight, it does help. As confidence returns, lenders need to be ready with practical, flexible finance to support those businesses looking to invest and grow.”

Kai Hunter, Non-Executive Director at Love Finance, said the decision could help smaller firms regain momentum: “The Bank of England cutting rates to 4.0% is a real boost for UK SMEs. After a tough couple of years with rising costs and cautious spending, this gives businesses some much-needed breathing space… If financial services can keep pace with this shift, it could make a big difference for businesses looking to get back on the front foot.”

The MPC signalled it will continue to judge future cuts carefully, with the pace of any further easing dependent on how quickly underlying inflationary pressures continue to fade.