What’s happening to interest rates?

In February, the Monetary Policy Committee (MPC) voted to reduce the Bank Rate to 4.5%. Despite this being the third reduction since August 2024, the MPC has still been cautiously restrictive to sustainably return inflation to its 2% target.

In Q4 2024, inflation was 2.5% but is expected to rise to 3.7% by Q3 2025 due to rising energy costs. However, the MPC anticipates that, after this, inflation will return to the target of 2%.

GDP growth has not been as strong as the MPC predicted, with indicators of business and consumer confidence declining. Productivity growth has also been subdued. However, despite some slowdown in growth, the MPC judged that there has been sufficient progress on disinflation in domestic prices and wages, so reduced Bank Rates by 0.25 percentage points.