Bank of England Cuts Interest Rate to 3.75% Amid Economic Stagnation Concerns

Gradual Monetary Easing Continues

The Bank of England (BoE) has implemented its fourth interest rate cut in 2025, reducing the benchmark rate to 3.75% from 4.0%. The decision was made on a narrow margin by the Monetary Policy Committee (MPC), with five members voting in favor and four against. This latest move reflects the central bank's ongoing efforts to balance inflation control with economic growth support.

Economic Context and Rationale

The rate cut follows recent sharp declines in inflation and new projections from BoE staff indicating stagnant economic growth through late 2025. Governor Andrew Bailey, who previously held a different view, cast the deciding vote in favor of the cut, tipping the balance within the committee. The decision highlights the BoE's shifting priorities toward supporting economic activity while maintaining inflation vigilance.

Market and Policy Implications

While the rate cut represents a continuation of the BoE's gradual easing cycle, the narrow voting margin suggests that further reductions may proceed at a slower pace than previously expected. The mixed signals from the MPC reflect ongoing debates about the appropriate balance between supporting growth and containing inflation, which remains higher than in other G7 economies.