The Bank of England (BoE) on Thursday cut its key interest rate by a quarter point to four percent, the lowest level in 2.5 years, as it bids to boost a UK economy still threatened by US tariffs.

Alongside the expected decision, the BoE forecast British economic growth to hit 1.25 percent this year, slightly better than the central bank's previous estimate of one percent.

"The direct impact of US tariffs is milder than feared but more general tariff-related uncertainty still weighs on sentiment," the BoE said in a statement.

London and Washington reached an agreement in May to cut levies of more than 10 percent imposed by US President Donald Trump on certain UK-made items imported by the United States, notably vehicles.

The quarter-point cut on Thursday was the BoE's fifth such reduction since starting a trimming cycle in August 2024.

"Interest rates are still on a downward path, but any future rate cuts will need to be made gradually and carefully," said Governor Andrew Bailey following Thursday's decision.

The BoE's main task is to keep Britain's annual inflation rate at 2.0 percent but the latest official data showed it had jumped unexpectedly to an 18-month high in June.

The Consumer Prices Index increased to 3.6 percent as motor fuel and food prices stayed high. (AFP)