The Bank of England has reduced interest rates to 4.5%, its lowest level since June 2023, as it slashed UK growth forecasts for the year and warned of rising inflation pressures on households. In a 7-2 vote, the Bank’s Monetary Policy Committee (MPC) opted for a quarter-point rate cut, bringing relief to borrowers but signalling deep concerns about the economy. The move follows a significant drop in inflation from over 11% in 2022 to2.5% today, though price pressures are expected to return in the coming months. The central bank has halved its UK growth forecast for 2025 , lowering expectations from 1.5% to 0.75% due to weakening household and business confidence. It also projected that inflation would peak at 3.7% by autumn , driven by rising energy prices and other living costs, further prolonging the cost-of-living crisis. Economic activity has stagnated, with GDP shrinking by 0.1% in late 2024 and showing only minimal growth so far this year. The latest outlook suggests that the UK could be entering a stagflationary period , where weak growth is accompanied by persistently high inflation. Despite this, the Bank signalled it is prepared to cut rates further in 2025, taking a “gradual and careful approach” to easing borrowing costs. However, some members of the MPC pushed for a larger half-point reduction , reflecting growing concerns about the economy’s trajectory. The Bank also cautioned that rising global trade tensions could pose additional threats to the UK economy. Increasing protectionist policies , particularly from the US, may disrupt trade and slow global economic activity, creating further uncertainty for British businesses. With the government already under fire for the sluggish economy, the latest forecasts will add pressure on Chancellor Rachel Reeves to manage rising borrowing costs and ensure stability in the public finances. Some analysts believe the Bank’s dovish stance on rate cuts could provide short-term relief for the Treasury, but economic headwinds remain strong. As the UK grapples with slow growth, persistent inflation, and global economic risks , the coming months will be crucial in determining whether further rate cuts can help steer the country away from a prolonged downturn.