The Bank of England cut its 2025 growth forecast in half and lowered interest rates by a quarter to 4.5% as it competes with the UK's stagnant economy and increasingly uncertain international environment.
Boe said in a blow to British Prime Minister Rachel Reeves that the economy is now expected to grow 0.75% this year, half of which is expected to be 1.5%, and inflation rises before regressing.
The forecast will cause fears of stagnation, as all nine members of the Monetary Policy Committee voted to lower the benchmark interest rate from the previous 4.75%.
Most of the seven favored the quarter-point move, while the two supported the giant half-point, including Catherine Mann, who was the leading Hawk before.
"We now expect GDP growth to be weaker in the near term starting from mid-year and before the next," said Boe Governor Andrew Bailey.
The prospect of lower interest rates has brought the FTSE 100 to a record intraday session and has boosted the bond market but has lowered the pound.
Neil Birrell, chief investment officer of Miton Investors, said the tax cuts aim to "make the economy promote the economy" and "especially needed".
He added that the reduction in votes clearly demonstrated concern about the "parassimilar state of economic growth".
BOE estimates GDP fell 0.1% in the last quarter of 2024, although it forecasts growth to grow to 1.5% in 2026 and 2027.
The swap market is expected to lower the tax rate further twice this year, with a third of the chance of 60%. Before the decision, the probability is about 35%.
But the central bank said it would take a "careful" approach to further lower interest rates, suggesting that market expectations are too high for quarterly parades in layoffs.
It said Reeves’ “decision to increase employer’s national insurance contributions will reach employment and prices, while the unemployment rate rose to 4.8% next year, 0.5 points higher than previous forecasts.
"Our growth prospects are certainly deteriorating, but they are the same as stubborn inflation," said Nick Hayes, head of fixed income distribution at AXA investment manager. "The good news for the bond market is that the most hawkish members have become The most devout member.”
The two-year gilding rally held at yield rates, reflecting interest rate expectations and inversely proportional, down 0.04 percentage points to 4.11% of afternoon trading.
The exchange rate against the US dollar fell 1% on the day to $1.238.
FTSE 100, many of which generate up to 1.6% of revenue from USD. Home builders and construction stocks also increased.
Reeves welcomes the tax cuts, saying it will help reduce the stress of life for families and make it easier for businesses to borrow.
But she added: “I’m still not happy with the growth rate.”
Opposition Conservatives said Reeves' "bad economic management" would limit the scope of future cuts.
BOE predicts inflation will rise to 3.7% in the third quarter of this year, mainly due to rising energy prices, which then declined to about 2.5% in 2026, with a target of 2% in 2027.
Bailey said BOE expects “to further reduce bank interest rates as the dissolution process continues.” But he admits there is more uncertainty about the rate of inflation falling now.
The bank also noted that according to the minutes of this week's meeting, "the increase in global economic uncertainty and the increase in volatility of financial markets." It added that it is "closely monitoring" Donald Trump's new administration's tariff plans.
The U.S. president has hinted that Britain may retain his duties as he intends to impose it on trading partners such as the EU, Canada and Mexico.
Bailey said that if Trump’s tariffs lead to “dispersal” in the global economy, it would be negative for growth, but the impact on inflation is difficult to unravel because there is no idea how the country will react.
He added that the BOE did not include the impact of tariffs in its inflation forecast “because we don’t know what will happen.”