Influencer Editorial Team
In a closely contested decision, the Bank of England (BOE) reduced its benchmark interest rate from 4.25% to 4% on Thursday, marking the latest move in what officials described as a “gradual and careful” path toward monetary easing.
The nine-member Monetary Policy Committee (MPC) voted 5–4 in favor of the 25 basis point cut, reflecting a deep divide among policymakers. Four members pushed to hold rates steady, another four supported the modest reduction, while one called for a more aggressive 50 basis point cut. A second round of voting ultimately delivered the majority verdict for the quarter-point cut.
Despite being widely anticipated by markets, the split vote drew attention. The British pound rose 0.5% following the announcement, reaching $1.3424 against the U.S. dollar.
The decision comes as the central bank attempts to balance persistent inflationary pressures with signs of economic cooling. Inflation, as measured by the Consumer Price Index, unexpectedly ticked up to 3.6% in June from 3.4% in May. At the same time, U.K. GDP shrank by 0.1% in May, and the labor market has shown signs of softening.
In its official statement, the BOE reaffirmed its commitment to returning inflation to the 2% target over the medium term and emphasized that future rate adjustments would be informed by incoming data.
Governor Andrew Bailey, speaking at a press conference, acknowledged the fragile economic landscape. “It remains important that we do not cut Bank Rate too quickly or by too much,” he said. However, he added, “There are good reasons to think that this rise in headline inflation will not persist.”
Chancellor Rachel Reeves welcomed the move, describing it as a positive step for households and businesses seeking relief from high borrowing costs. This marks the fifth rate cut since the July 2024 general election.
Economists expressed mixed views. George Brown, senior economist at Schroders, noted that the conflicting signals from jobs, inflation, and growth metrics made the rate cut understandable, though far from straightforward. “The path forward is anything but clear,” he said. “We think there’s a decent chance rates will not fall below 4% this year.”
Others, like Ashley Webb of Capital Economics, are more optimistic about deeper cuts. “Despite the recent uptick in CPI, labor market weakness suggests inflation and wage growth will ease,” he said. Webb forecasts rates could fall to 3.00% by 2026, significantly lower than current market expectations.
While Thursday’s move reflects the BOE’s cautious confidence, it also underscores the delicate balancing act the central bank faces as it attempts to support economic growth without losing control of inflation.
