The Bank of England reduced the base rate by 0.25 percentage points to 4.25%, marking the fourth consecutive cut since August 2024. This decision reflects growing concerns over the UK's economic resilience in the face of escalating global trade tensions, particularly following recent U.S. tariff implementations.

Markets had priced in an almost 100% chance of this move, with inflation easing and concerns building around Donald Trump’s trade tariffs. 

But the Monetary Policy Committee (MPC) was a house divided. Five members of the MPC, including Andrew Bailey, voted to lower the base rate by 25 basis points. Two members preferred a bolder move, voting to reduce the base rate to 4%. The remaining two took a more cautious stance, opting to hold at 4.5%.

Helen Vieira, Head of Banks at Flagstone International, shared her insights:

"The Bank of England’s decision to reduce the base rate reflects mounting concerns over the UK's economic resilience amid escalating global trade tensions. The contraction in the services sector and declining business activity underscore the challenges posed by recent international developments.”

Why did the Bank of England cut rates?

Inflation is slowing

The Bank of England is responsible for keeping inflation low and stable – aiming for a target of 2%, set by the Government.

UK inflation fell faster than expected in March, down to 2.6%. It's expected to climb again this summer – potentially hitting 3.7% – before falling later in the year.

But the path ahead looks bumpy. Global events – like trade disputes and rising energy costs – could shift things quickly.

Global uncertainty is growing

The US trade tariffs are likely to weigh on UK growth in the months ahead.

Andrew Bailey, Governor of the Bank of England, recently said the UK could face a ‘growth shock’ as a result of Trump’s trade policies. The International Monetary Fund recently lowered its UK growth forecast for 2025, from 1.6% to 1.1%, in response to the impact of the tariffs.

Cutting the base rate now is one way to support the economy – by making it cheaper for businesses to borrow and invest and easing pressure on households.

What does the base rate cut mean for depositors?

For international cash depositors, this rate cut signals a shift towards a lower interest rate environment, potentially impacting returns. In this context, proactive cash management becomes essential. By diversifying holdings and staying attuned to global monetary policy shifts, depositors can navigate the evolving landscape and seek optimal returns across jurisdictions.

There are still attractive rates across the market, particularly on Fixed Term accounts, where clients can lock their money away for a set period in exchange for a higher return. But some rates have already started to edge down.

A simpler way to manage your funds

Staying on top of your interest rates doesn’t have to mean juggling multiple banks or spending hours comparing options.

With Flagstone International, you can access a wide range of deposit accounts from numerous banks – all through one secure platform. Whether you want flexibility or fixed returns, you can find options that suit your goals and move your money in just a few clicks.