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.