The Bank of England (BoE) delivered its fifth rate cut in a year on Thursday, lowering the Bank Rate by 25 basis points to 4.00%. The decision reflects mounting concerns over the UK’s weakening economic momentum, even as inflation remains stubbornly above target.
The Monetary Policy Committee (MPC) vote revealed a rare and significant 5–4 split, with notable disagreement among members about the size and timing of the rate cut. One member reportedly advocated for a 50 basis point cut, prompting a second round of voting—an uncommon move that underscores the current uncertainty within the Committee.
The vote split was expected to come in at 8-1. The fact that four MPC members voted to keep the rate unchanged was a lot less dovish than anticipated, prompting the pound to rise on the back of it. GBP/USD and GBP/JPY are both up 0.45% since the announcement, whilst EUR/GBP is down 0.5%.
The decision to ease monetary policy further comes in response to a cooling UK economy. Recent data shows GDP has contracted over recent months, alongside rising unemployment, as labour market conditions soften. However, with inflation still above 3%, the risk of stagflation is becoming more apparent, with several policymakers showing this concern by opting to vote to keep rates unchanged.
In its accompanying statement, the Bank reiterated its intention to proceed with “a gradual and careful” easing path. Further cuts are expected to be modest, and only if economic data justifies continued loosening. Markets interpreted this as a dovish hold on future actions, with the Bank opting to retain flexibility amid competing risks.
Updated Economic Projections
- Growth Forecasts: GDP is now projected to expand 1.25% in 2025 and in 2026.
- Inflation Outlook: Price growth is not expected to return to the 2% target until early 2027, reflecting persistent structural inflationary pressures.
- Policy Path: the BoE’s non-committal and data dependant approach has led markets to remove some of the further easing priced in for the end of 2025, with just 15bps of easing as of now.
