Expert comment: BoE cuts interest rates to 4%

Matthew Allen, Lecturer in Economics and macroeconomic expert at the University of Salford, comments:

“Today’s interest rate cut will bring welcome relief to millions of borrowers across the UK. After years of steep repayment costs, this marks a turning point in the Bank of England’s approach.

But while the interest rate cut is a positive development, it’s far from a clean bill of health for the economy. Inflation remains stubborn in key sectors such as services and food, and households are still grappling with the aftershock of prolonged price rises. For savers, falling rates also mean lower returns on deposits, potentially eroding household wealth over time.

Meanwhile, Chancellor Rachel Reeves faces mounting fiscal pressure. Reports of a potential £50 billion budget black hole have sparked early speculation around future tax increases. Will a wealth tax be introduced or will there be further tax rise increases across the board?

On the global front, the outlook remains complex. The ongoing wars between Russia and Ukraine, Israel and Gaza continue to disrupt markets and energy prices. Adding to this, further US tariffs introduced under Donald Trump’s trade policy, including new measures on imports from India, may ripple through global supply chains, increasing costs for UK firms and potentially reigniting inflationary pressures.

While the UK economy has grown by 0.7%, these gains remain fragile. Employers are also continuing to face rising costs, with increases to employer National Insurance contributions and the National Minimum Wage likely to keep operational expenses elevated. At the same time, the UK labour market is cooling, which may dampen wage growth and reduce inflationary pressures, but also poses risks to household spending and overall economic momentum. This could lead some businesses to pass costs on to consumers, keeping inflation stickier than hoped.

Today’s rate cut is a welcome signal of progress but it’s not a green light for complacency. The path to recovery is still narrow and surrounded by geopolitical and fiscal headwinds.”