The Bank of England has cut interest rates to its lowest level for two years as it warned that an escalating global trade war will drag on growth over the next three years.

The central bank cut the UK’s base interest rate from 4.5% to 4.25% following a slowdown in inflation in recent months.

Andrew Bailey, governor of the Bank of England, said: “Inflationary pressures have continued to ease so we’ve been able to cut rates again today.”

The Bank also predicted that the UK economy will grow by 1% this year, upgrading its previous 0.75% forecast on the back of a strong start to 2025.

However, it added that recently announced US tariff plans and their impact on global trade will dent UK growth by 0.3 percentage points over the next three years, as it downgraded its 2026 forecast.

Most of this downward impact is to come from “lower US demand for UK exports” and weaker global activity, according to the Bank’s latest report.