Key Takeaways
- Third interest rate cut from the Bank of England this year, following reductions in February and May.
- Monetary policy committee voted by a narrow majority of five to four to cut rates after a second vote.
- Inflation expected to hit 4% in September, double the Bank of England’s target.
The Bank of England has cut UK interest rates by 25 basis points to 4%, leaving the base rate at its lowest level in two years. The move was widely expected by markets despite a persistent inflationary trend in the UK economy and significant global uncertainty over tariffs. But markets have now repriced the likelihood of a November cut after this month’s split vote and a higher forecast for UK inflation for the rest of the year.
At a meeting of the Bank’s nine-member monetary policy committee on Wednesday, rate setters voted twice in order to secure a majority decision on the base rate—the first such gridlock since the MPC’s inception in 1997, when the Bank became independent of government. One member voted for a 50 basis point cut in the first round.
Today the Bank said that worrying UK labor market data and stagnating gross domestic product growth were sufficient prompts for a rate cut stimulus.
Interest Date Decision Was a Narrow One
Morningstar chief European market strategist, Michael Field, says the Bank is taking “the prudent approach.”
“The Bank of England’s decision to cut interest rates by 25 basis points was widely predicted by economists, but the decision was passed by the finest of margins,” he says.
“The bank has been carefully balancing the need to stimulate the UK economy with the desire to get inflation back to more normalized levels.
“As such, the BoE is taking the prudent approach of small cuts to rates with pauses in between.”
What Did the Bank of England Say About UK Inflation?
UK inflation is running at 3.6% for the 12 months to June 2025, as measured by the Consumer Prices Index. This is significantly above the Bank of England’s target of 2% and represents a resurgence in price increases after CPI hit target in May last year. The next inflation data for July is due on Aug. 20. The Bank has upgraded its forecasts for the peak in CPI, to 4% next month, higher than the 3.7% peak predicted in May.
In updated comments today, the Bank says it still expects inflation to fall back to the 2% target from the second quarter of 2027.
“Inflation is expected to fall back thereafter towards the 2% target, although the committee remains alert to the risk that this temporary increase in inflation could put additional upward pressure on the wage and price-setting process.”
Will the Bank of England Continue to Cut Interest Rates?
While the Bank of England meets again in September, market pricing suggests a very small chance of a rate change.
“With inflation expected to pick up in the coming months, delivering another rate cut in September could prove optically challenging. A cooling labour market should, in theory, help ease price pressures but there is limited evidence of this so far,” says Zara Nokes, global market analyst at J.P. Morgan Asset Management.
Interest rate swaps data reflects the shifting sentiment after this most recent meeting: a November rate cut was seen as likely but that probability has now dropped below 50%. Current market pricing, which runs out to next July’s meeting, suggests no further interest rate cuts.
Some experts still expect more cuts in the autumn, in defiance of the current market pricing.
Peter Goves, head of developed market debt sovereign research of MFS Investment Management said: “Our base case remains that further rate cuts are imminent, as we place greater emphasis on the downside risks to growth associated with the medium-term inflation outlook, perhaps more so than the market does.”
Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management said: “While we continue to anticipate the next cut in November as inflation and pay growth soften, today’s meeting suggests the easing path could be more cautious.”
When Are the Bank of England’s Next Interest Rate Decisions?
Only three Bank of England meetings remain in 2025. The interest rate decisions will be announced on the following dates:
- Sept. 18.
- Nov. 6.
- Dec. 18.
- Feb. 2, 2026.
- March 19, 2026.
- April 30, 2026.
