The Bank of England (BoE) has announced a 0.25 percentage point cut to interest rates to bring the central bank’s base rate down to 4.25 per cent.

The latest move is the fourth cut to the base rate since the BoE started to bring interest rates down last August from a recent peak of 5.25 per cent.

At its meeting this week, the BoE’s Monetary Policy Committee (MPC) voted by a majority of five to four in favour of a 0.25 per cent reduction.

Two members had voted for a larger cut of 0.5 percentage points, while the other two members were in favour of holding rates at 4.5 per cent.

In the MPC’s report published today, it stated that “monetary policy is not on a pre-set path”, and said the committee would remain “sensitive to heightened unpredictability” in the economic environment.

While the annual CPI inflation rate fell from 2.8 per cent in February to 2.6 per cent in March, the MPC warned that increases in energy prices are still likely to drive up CPI inflation from April onwards, to 3.5 per cent during Q3, before coming down again later in the year.

Commenting on the announcement, Evelyn Partners chief investment strategist, Daniel Casali, said: “While the macro picture has changed since the last MPC meeting in February to become more disinflationary, the BoE appears focused on cutting interest rates at a gradual pace of around one-quarter percentage point per quarter since it began easing last August.

“This decision came before any details on the UK-US trade have emerged, and indeed the devil will be in that detail. But this rate cut, alongside the news that the UK is the first country to strike a US trade deal, coming hot on the heels of the India agreement, will doubtless help the government to paint a more optimist picture for the UK economy.

“MPC members will be wary of cutting interest rates too quickly, with three issues in mind.

“First, it is not clear what impact US trade tariffs will have on inflation. Second, the latest nominal weekly earnings for the whole economy of 5.6 per cent year-on-year (on a three-month moving average) is running uncomfortably higher than prevailing inflation. And finally, the latest YouGov survey of household inflation expectations has picked up to 4 per cent, its highest rate since October 2023.

“Looking forward, the MPC is expected to stick to gradual and careful guidance on interest rates by cutting once a quarter, as the risk of policy error remains high. Nevertheless, gradually lower rates should provide some insurance against downside risks to the economy and UK domestic stocks.”

The BoE’s next base rate decision will be announced on 19 June.

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