United Kingdom Interest Rate

The Bank of England cut interest rates by 25 bps to 4%, the lowest since March 2023, in a rare two-round vote that underscored sharp divisions over how to tackle sticky inflation and a softening economy. Five of the nine MPC members backed a 25bps cut, while four voted for no change. Governor Andrew Bailey called it a “finely balanced” decision and reiterated that future cuts will be “gradual and careful.” It was the first time in the BoE’s history that two votes were needed to reach a majority on rates. The split highlights tension between rising inflation, now expected to peak at 4% in September, and signs of labour market strain after higher payroll taxes and minimum wage hikes. Still, growth forecasts for 2025 were nudged up to 1.25%. The BoE also flagged potential changes to its bond sales program next month, citing stress in long-dated gilt markets. Markets expect one more cut this year, with rates settling near 3.5% in 2026.

The Bank of England is expected to cut interest rates by 25 basis points to 4%, the lowest since March 2023, as it balances persistent inflation with mounting concerns over economic growth and the labour market. The move, anticipated by markets, would mark a fifth straight quarter-point cut and see the BOE move ahead of the Fed in its easing cycle. Updated forecasts are likely to reflect stronger short-term inflation due to rising energy and food costs, but also a weaker jobs market following April’s tax hikes. The Monetary Policy Committee remains cautious, likely keeping its “gradual and careful” guidance while divisions persist within the nine-member panel. A three-way split is expected, with some pushing for a larger cut and others wanting no change. Markets currently price in two more cuts this year, with rates settling around 3.5% in 2026. Traders will watch for hints of a slower pace or adjustments to the bank’s bond sale strategy amid pressure on long-term gilt yields.

The Bank of England voted 6-3 to keep the Bank Rate steady at 4.25% at its June meeting, navigating a challenging backdrop of heightened global uncertainty and persistent inflationary pressure. Three members favored a 0.25 percentage point cut to 4%, though investors had expected a 7-2 split. The central bank noted that consumer price inflation is likely to remain broadly at current rates for the rest of the year before easing back toward the target next year. However, it warned of “two-sided risks to inflation,” expressing concern over rising energy prices amid the escalating Middle East conflict and potential trade disruptions from proposed US tariffs. It also noted that underlying UK GDP growth "appears to have remained weak,” while the labor market has “continued to loosen.” Still, in light of the broader outlook and ongoing disinflation, the Bank affirmed that a gradual and cautious approach to the further withdrawal of monetary policy restraint remains appropriate.