The Bank of England has today decided to cut interest rates by 25 basis points to 4%.
Since the start of the year, we’ve seen interest rate cuts in February and May. In June, when the Monetary Policy Committee last met, it was no surprise that the rate remained unchanged. So, in another move that was just as widely predicted, the Bank of England has today reduced the base rate to 4%.
With July being a blank month for the Monetary Policy Committee, there’s been some time to take stock of the prevailing domestic and global economic conditions.
At home, the biggest concern for the MPC has likely been inflation and unemployment. The main inflation measure, CPI, was 3.6% in the 12 months to June 2025, up from 3.4% in the previous month. It’s far below the peak of 11.1% in October 2022 but still remains above the 2% target.
In the year to June 2025, food prices have risen by 4.5%. Higher costs for key ingredients such as chocolate, butter, coffee and meat were compounded by fuel prices falling only slightly between May and June, compared to a larger drop in the same period in 2024.
Despite this, the Bank’s forecast that inflation will peak during Q3 will have had an influence on today’s decision. Even more so, the concern about stimulating a stagnant economy. Key to this is the unemployment rate, where new figures released in July showed unemployment had risen again and now stands at 4.7%, its highest in four years, where the number of job vacancies has now been falling continuously for three years.
And then of course, there’s the global picture. While UK-US trade tariffs appear to be locked in, the continuing uncertainty here will no doubt be a consideration. The USA’s response this week to India buying Russian oil is a stark reminder of how quickly Trump can change his mind.
Trade impact on economic growth has prompted central banks around the world to support domestic economies though, with both the US Federal Reserve and the European Central Bank signalling or implementing rate reductions. All things considered, this has likely given the Bank of England additional room to manoeuvre without risking a sharp depreciation in the pound.
Next announcement is September 18th.
PLG Consultants
07th August 2025
