Bank of England cuts interest rates as UK narrowly avoids recession

The Bank of England lowered interest rates by a quarter point Thursday and downgraded the UK’s economic outlook after the country narrowly avoided recession in the July-September quarter.

Economic growth has been “broadly flat since March last year,” the Bank said in its quarterly inflation report, despite plans by the Labour government to kickstart economic growth.

Inflation, which remains above the Bank’s 2% target, is also expected to spike later in 2025 due to higher energy costs and water bills, it said, as it lowered interest rates to 4.5% in a widely expected move.

Chancellor Rachel Reeves welcomed the rate cut, which will reduce mortgage costs for homeowners, but said that she is “still not satisfied with the growth rate,” The BBC reported.

The Bank said that the economy would likely remain sluggish in the short term, adding that it would take a “careful and gradual” approach to future interest rate decisions, taking into account factors such as the threat of US tariffs on European goods that could affect inflation.