Bank of England cuts interest rate by 0.25%

Bank of England cuts interest rate by 0.25%

08 May 2025

Simeon Willis, Chief Investment Officer, XPS Group, said: The interest rate reduction will be welcomed by most pension scheme investors. Long-term inflation expectations fell following President Trump's tariff announcements, possibly reflecting expectations of lower-cost imports being diverted to the UK instead of the US. March inflation also came in lower than forecast, though it remains above the Bank of England's target. These factors have set the scene for a gradual easing of interest rates, supporting a UK economy increasingly focused on finding new sources of growth. 

Traditionally, lower interest rates are seen as negative for pension schemes, because they increase the value of liabilities. But with most schemes now well-funded and highly hedged, many are less concerned with falling yields. In fact, persistently high long-term yields have created friction, creating operational challenges which constrains the ability to maintain exposures to illiquid growth assets. What schemes want now is stability, combined with sustained growth to support the long-term value of their credit and other risk assets, maintaining funding levels. Economic growth sits at the heart of this desirable scenario.”