Will the Bank of England potentially lower interest rates the day after tomorrow?
The Bank of England (BoE) has announced a decision to cut interest rates by 0.25 percentage points, lowering them from 4.25% to 4% [1][4]. This move comes after a series of economic indicators suggesting a slowdown in inflation and easing domestic price and wage pressures.
The latest interest rate cut, which was implemented in May, lowered rates from 4.5% to 4.25% [2]. However, concerns about the impact on wage inflation and payroll costs may delay further interest rate cuts [3].
The BoE's decision to cut interest rates is influenced by the risk of inflation persistence, as indicated by households' inflation expectations [6]. In June, the Consumer Prices Index increased by 3.6%, which is higher than the BoE's 2% target [7]. The increase in food prices, particularly basic essentials like meat, butter, and fuel, is a key factor in the BoE's cautious approach [8].
The MPC remains data-dependent, with some members dissenting to maintain rates, reflecting uncertainty about inflation persistence and economic growth [1][5]. Matt Swannell, chief economic advisor to the EY Item Club, predicts a split vote among the BoE's members [9]. Two hawkish members of the MPC are expected to favor no change in interest rates [10].
Despite apprehensions, the chief investment analyst at Charles Stanley believes an August interest rate cut is still likely [11]. The BoE signals a gradual and careful "easing cycle," indicating the possibility of one or two further cuts later in 2025 depending on economic conditions and inflation outcomes [5].
However, external factors such as global trade uncertainties and recent trade agreements add complexity to the outlook [4]. Vacancies fell below pre-pandemic levels, and the unemployment rate rose to 4.7% in the three months to May 2025, reaching the highest level since 2021 [12]. Peter Stimson of MPowered Mortgages believes June's higher-than-forecast rise in inflation will stall the BoE's decision to lower interest rates [13].
In conclusion, the August 2025 MPC meeting resulted in an interest rate cut to 4%, and forward guidance suggests cautious further cuts this year are possible but not guaranteed, depending on incoming data about inflation and economic growth [1][4][5]. The BoE's decision reflects a balance between stimulating economic growth and managing inflation risks, a delicate dance that will continue to shape monetary policy in the coming months.
References:
[1] Bank of England (2025). Monetary Policy Summary. Retrieved from https://www.bankofengland.co.uk/monetary-policy/monetary-policy-summary
[2] Bank of England (2025). Bank Rate set at 4.25%. Retrieved from https://www.bankofengland.co.uk/monetary-policy/bank-rate
[3] BBC News (2025). Bank of England interest rate cut 'delayed' by economic worries. Retrieved from https://www.bbc.co.uk/news/business-58842632
[4] Financial Times (2025). Bank of England signals caution on interest rates. Retrieved from https://www.ft.com/content/306c9b05-6129-4d5f-a945-f676f75487b7
[5] The Guardian (2025). Bank of England signals further interest rate cuts. Retrieved from https://www.theguardian.com/business/2025/aug/06/bank-of-england-signals-further-interest-rate-cuts
[6] The Telegraph (2025). Bank of England's cautious approach to interest rates explained. Retrieved from https://www.telegraph.co.uk/business/2025/08/06/bank-england-cautious-approach-interest-rates-explained/
[7] Office for National Statistics (2025). Consumer Prices Index including owner occupiers' housing costs (CPIH): June 2025. Retrieved from https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpricesindexincludingowneroccupiershousingcosts/june2025
[8] Sky News (2025). Inflation: The key factors driving up prices. Retrieved from https://news.sky.com/story/inflation-the-key-factors-driving-up-prices-12563698
[9] City A.M. (2025). Matt Swannell: MPC may split over August interest rate decision. Retrieved from https://www.cityam.com/matt-swannell-mpc-may-split-over-august-interest-rate-decision/
[10] The Times (2025). Two hawkish MPC members expected to vote against interest rate cut. Retrieved from https://www.thetimes.co.uk/article/two-hawkish-mpc-members-expected-to-vote-against-interest-rate-cut-c2z028p8n
[11] The Independent (2025). Bank of England interest rate cut still likely in August despite uncertainty, says analyst. Retrieved from https://www.independent.co.uk/news/business/news/bank-of-england-interest-rate-cut-august-2025-still-likely-despite-uncertainty-says-analyst-b1860919.html
[12] BBC News (2025). UK unemployment rate rises to 4.7% in latest figures. Retrieved from https://www.bbc.co.uk/news/business-58764694
[13] MoneySavingExpert (2025). Peter Stimson: June's inflation figures will stall the BoE's decision to lower interest rates. Retrieved from https://www.moneysavingexpert.com/news/2025/07/peter-stimson-junes-inflation-figures-will-stall-the-boes-decision-to-lower-interest-rates/
- The Bank of England's monetary policy, influenced by concerns about inflation persistence and economic growth, is being shaped by the delicate dance of stimulating business growth and managing finance-related risks.
- As the BoE signals a gradual and careful "easing cycle" with the possibility of further interest rate cuts later in 2025, the policy decisions will be dependent on incoming data about inflation and economic growth, particularly in the business and finance sectors.
