Struggling Brits were handed some respite today with the Bank of England cutting interest rates. The Monetary Policy Committee reduced the level from 4.5 per cent to 4.25 per cent as fears over the stalling economy outweighed the threat of inflation. However, the voting margin was an extremely tight 5-4 – with two members preferring a half-point cut and two wanting to stay on hold.

The base rate is now at its lowest rate since May 2023, with Rachel Reeves hailing 'welcome news'. The average tracker mortgage-payer will save around £350 a year as a result. The Bank has also slightly upgraded its forecasts for UK plc this year, albeit only to 1 per cent from a dismal 0.75 per cent previously pencilled in.

And next year's performance is anticipated to be slightly worse at 1.25 per cent expansion. Analysts immediately priced in more interest rates to come soon. It is the first time the MPC has acted since Donald Trump threw the world into chaos with his so-called 'Liberation Day' tariff announcements last month.

Since then stock markets have crashed and global growth forecasts have been downgraded – throwing Labour's spending plans into turmoil. The Bank said recently announced US tariff plans and their impact on global trade will dent UK growth by 0.3 percentage points over the next three years. But governor Andrew Bailey said the expected Transatlantic trade deal today will help ease the impact.

'I very much welcome it, and very well done to those involved,' he said. Ministers have been talking up the benefit to Brits of interest rates coming down, easing the stress on mortgage payers. Wage rises are also running higher than inflation.

The anticipated US announcement this afternoon comes after a wide-ranging deal was struck with India earlier this week. Your browser does not support iframes. The Monetary Policy Committee, led by BoE governor Andrew Bailey, is widely expected to reduce interest rates from 4.5 per cent in its latest decision just after noon Swati Dhingra and Alan Taylor wanted to push through a bigger 0.5 percentage point reduction to interest rates.

However, chief economist Huw Pill and Catherine L Mann preferred to keep rates unchanged. The committee stressed that it remains 'sensitive to heightened unpredictability in the economic environment' and that a 'gradual and careful approach' to cutting rates was appropriate. UK economic growth is expected to be stronger than previously thought this year, but weaker over 2026 as the impact of tariffs on global trade takes its toll, according to new forecasts from the Bank of England.

The projections show GDP will average 1 per cent this year, marking an upgrade from the 0.75 per cent growth predicted in February. That is largely due to growth over the first three months of 2025 being higher than the Bank had previously anticipated. However, the forecast for 2026 has been downgraded to 1.25 per cent, from 1.5 per cent.

The Bank also cut its growth outlook for the world economy to 1.5 per cent in 2026, from 2 per cent previously, as new US tariffs and heightened uncertainty over global trade weigh on economic activity around the world. Most of the impact on UK growth was seen as coming from 'lower US demand for UK exports' and weaker global activity. However, the forecasts were based on tariff policy from the end of April.

The picture could be brighter if the trade deal removes at least some of those barriers. The projections show GDP will average 1 per cent this year, marking an upgrade from the 0.75 per cent growth predicted in February Inflation is expected to rise this year before sinking towards the 2 per cent target Ms Reeves said: 'It's very good news that we've had four interest rate cuts now in the last 10 months, and for someone on a variable rate mortgage that can mean around £100 a month off mortgage payments. So that is significant.

'I recognise, though, that families are still struggling with the cost-of-living crisis, and whether it is interest rates or inflation it's so important that this Government has returned stability to the economy, because stability means lower inflation, lower interest rates, making working people better off.' London's blue chip index held on to gains following the rate cut decision while the pound strengthened slightly. The FTSE 100 stood 30 points higher at 8589.3, up 0.4 per cent.

Sterling edged 0.3 per cent higher to $1.3331 and was 0.2% up at 1.1770 euros. Threadneedle Street's decision, along with quarterly economic forecasts, was delayed by two minutes due to the silence marking 80 years since VE Day. Inflation has fallen in recent months, which indicated to policymakers that interest rates can continue to come down.

The headline CPI slowed to 2.6 per cent in March, from 2.8 per cent in February, according to the latest official data. Crucially the rate of services inflation – a metric closely watched by the Bank of England – fell to 4.7 per cent from 5 per cent. There is speculation that countries such as China will respond to US tariffs by re-routing exports, potentially resulting in lower prices for UK consumers.

A weaker US dollar and falling oil prices could also put downward pressure on inflation. Europe's central bank cut interest rates last month, and said 'exceptional uncertainty' over trade policy meant future rate decisions would have to be taken on a meeting-by-meeting basis. However, there is little sign of interest rates falling in the US soon, despite Donald Trump publicly demanding action from the US Federal Reserve.