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The Bank of England has reduced its growth forecast for the UK economy to just 0.75% for 2025, down from a previous estimate of 1.5%. This revised outlook comes amid fears of rising inflation and stagnant economic activity, triggering concerns over potential stagflation, according to officials. In response to the downturn, the Bank cut interest rates for the third time in six months, lowering them from 4.75% to 4.5% to alleviate pressure on households, as inflation is expected to rise from 2.5% to around 3.7% this summer.
The gloomy projections have raised alarm among business leaders, who attribute the decline in confidence to recent government policies, including the planned £25 billion increase in national insurance contributions, as reported by various sources. Concerns are also mounting about the impact of global developments, including tariff wars initiated by the United States.
Andrew Bailey, the Bank's governor, emphasized the need for a cautious approach to future rate cuts, while union leaders called for increased public investment to stimulate growth. As the government faces pressure to boost economic confidence, further assessments are anticipated from the independent Office for Budget Responsibility.