Bank of England Poised to Cut Interest Rates to 4%: What It Means and Why It Matters

According to BBC news, The Bank of England Poised to Cut Interest Rates to 4%:

What It Means and Why It Mattersank of England is widely expected to cut its base interest rate on Thursday from 4.25% to 4%, the lowest level since March 2023. This would mark the fifth rate cut since August 2024, signaling a clear shift in monetary policy as the UK faces slowing economic growth and declining inflation.

The central bank typically raises rates to fight inflation, but now that inflation is nearing its 2% target, there’s room to reduce borrowing costs. At the same time, economic data shows that the UK economy recorded no growth in April and May, which increases pressure on the Bank to act in support of demand.

For households, a lower interest rate could reduce monthly mortgage payments, especially for those with variable-rate deals. Businesses may also benefit from cheaper borrowing, encouraging investment and spending. However, savers will likely earn lower returns, as banks adjust deposit rates downward.

A rate cut also tends to weaken the British pound, which is closely watched by currency traders. Lower interest rates make UK assets less attractive to foreign investors, often leading to downward pressure on GBP in the forex markets.

The Bank of England will also release its updated economic forecasts alongside the rate decision. If growth projections remain weak, it could influence future government policy. Analysts warn of a growing budget gap, and the government may consider tax increases in the Autumn Budget to cover the shortfall.

Globally, investors are monitoring how the UK’s decision aligns with other central banks, including the US Federal Reserve and the European Central Bank, which are also reassessing their interest rate policies in light of cooling inflation trends.