Bank of England cuts interest rate to 4.25%

The Bank of England has lowered its base interest rate by 0.25 percentage points, bringing it down to 4.25% following its latest Monetary Policy Committee (MPC) meeting. The move, announced today, reflects the Bank’s ongoing efforts to manage inflation while supporting a fragile economic recovery.

In contrast, the US Federal Reserve opted to keep its benchmark interest rate unchanged at 4.25% to 4.5% during its meeting on 7th May.

The decision was split, with a narrow 5–4 majority on the MPC. Two members voted for a larger cut to 4%, while two others preferred to hold the rate at 4.5%, where it had remained since February. The Committee acknowledged “continued progress in disinflation” but noted that inflation risks remain in both directions.

Inflation currently stands at 2.6%, slightly above the Bank’s 2% target, but well below the highs experienced in previous years. The rate cut is expected to ease financial conditions for households and businesses still navigating economic headwinds, including tax changes and international trade uncertainties.

Mike Randall, CEO of Simply Asset Finance, welcomed the reduction but said it only scratches the surface of what’s needed for small and medium-sized enterprises (SMEs).

“This month’s rate cut will ease some pressure for businesses under strain, especially following recent National Insurance changes,” he said. “However, the truth is that it will do little to aid the long-standing challenge of securing affordable finance. SMEs deserve a clear and consistent policy environment – one that gives them access to capital, regulatory certainty, and the long-term confidence they need to thrive.”

Neil Rudge, Chief Banking Officer for Commercial at Shawbrook, echoed the relief but highlighted the ongoing challenges SMEs face.

“The increase to employer National Insurance contributions and the wider turmoil caused by the proposed imposition of tariffs has created significant uncertainty,” he noted. “Falling inflation and now, a reduction to the interest rate is quietly good news for the UK, and should help to spark further growth moving forward.”

Rudge added that nearly half of SMEs surveyed by Shawbrook cited cash flow issues, suggesting that lower borrowing costs could be a lifeline if paired with the right financial support.

With inflation trending downward and analysts forecasting additional cuts later this year, today’s move may signal the beginning of a looser monetary policy cycle. However, the Bank of England remains cautious, balancing the need to support economic growth with the risk of inflation reigniting.

The next MPC meeting is scheduled for June, with markets now watching closely for signs of further easing.