The Bank of England’s Monetary Policy Committee (MPC) announced today a 25 basis point cut to the UK base rate, bringing it from 4.25% to 4.00%. The decision, revealed at midday, reflects growing concerns over economic weakness despite persistent inflationary pressures, marking the fifth reduction in the current easing cycle that began in August 2024.
The MPC’s move was widely anticipated by economists, with market pricing and expert forecasts pointing to a cut as Britain’s economy contracted for two consecutive months in April and May 2025. Official figures from the Office for National Statistics (ONS) reported a 0.1% GDP contraction in May, following a 0.3% decline in April, alongside a rise in unemployment to 4.7%—the highest in nearly four years. These indicators, coupled with weakening business confidence and a slowdown in wage growth, tipped the scales in favour of easing monetary policy to stimulate growth.
However, the decision was not unanimous, reflecting the delicate balance the MPC is navigating. Inflation, which rose to 3.6% in June 2025 from 3.4% in May, remains well above the Bank’s 2% target. External pressures, including geopolitical tensions in the Middle East and the impact of US trade policies under President Donald Trump, have fuelled concerns about oil prices and potential inflationary shocks. Despite these risks, the MPC prioritised economic growth, with Governor Andrew Bailey signalling earlier in July that larger cuts could be considered if the labour market showed further signs of deterioration.
The vote was expected to be contentious, with analysts predicting a potential three-way split among the nine-member committee. At the June 2025 meeting, three members—Swati Dhingra, Dave Ramsden, and Alan Taylor—voted for a cut to 4.00%, while six favoured holding rates steady. Today’s decision saw a narrower majority, with some members, including Catherine Mann, likely advocating for no change due to inflation concerns, and others, such as Dhingra, possibly pushing for a more aggressive 50 basis point cut.
Economic Context and Rationale
The MPC’s decision comes against a backdrop of mixed economic signals. While inflation remains a concern, the Bank expects it to peak at 3.7% in September before gradually declining through late 2025 and into 2026, as the impact of earlier shocks, such as Trump’s tariffs and April’s increases in employers’ National Insurance contributions and the National Minimum Wage, fades. The committee emphasised a “gradual and careful” approach, consistent with its pattern of quarterly 25 basis point cuts over the past year.
Tom Stevenson, investment director at Fidelity International, noted the MPC’s challenge: “The UK economy contracted sharply in April, wage growth has slowed, and unemployment is creeping up. There’s a clear case for lowering borrowing costs to kick-start growth. Yet, inflation at 3.6% and rising oil prices due to Middle East tensions complicate the outlook.”
Implications for Consumers and Businesses
The rate cut is expected to provide some relief to borrowers, particularly those with mortgages. The average two-year fixed-rate mortgage has already fallen to 5.02%, and the five-year deal to 5.01%, significantly lower than their peaks of 6.85% and 6.37% in August 2023. Further reductions in borrowing costs could make homeownership more affordable, potentially boosting the housing market, which has seen a recent uptick in prices.
However, savers may face challenges as savings rates, which tend to correlate with the base rate, are likely to decline further. Best-buy cash accounts have already seen rates drop since last summer, with some providers introducing temporary bonuses to attract deposits.
For businesses, particularly those with international operations, the cut could weaken the pound, impacting currency-sensitive transactions. A weaker GBP may reduce profit margins for firms repatriating overseas earnings but could enhance competitiveness for UK exporters.
Looking Ahead
Economists remain divided on the pace of future cuts. ING and the International Monetary Fund (IMF) predict one additional cut in November, bringing the base rate to 3.75% by year-end, while Deutsche Bank forecasts three cuts, potentially lowering the rate to 3.5% by December. Pantheon Macroeconomics, however, expects only one more cut this year, citing persistent inflationary pressures.
The MPC’s next meeting on September 18, 2025, will be closely watched for signals of further easing. With inflation expected to remain above target for the remainder of 2025 and external risks like Middle East conflicts and US tariffs looming, the committee’s cautious approach is likely to persist.[](https://moneyweek.com/economy/when-is-the-next-bank-of-england-interest-rate-mpc-meeting)[](https://commonslibrary.parliament.uk/research-briefings/sn02802/)
George Vessey, lead strategist at Convera, suggested that today’s cut may not be followed by strong commitments to further reductions: “With inflation surprising to the upside, the MPC is unlikely to pre-commit to more easing after today.”
Conclusion
Today’s decision underscores the Bank of England’s attempt to balance economic growth with inflation control in an uncertain global environment. While the rate cut offers a lifeline to borrowers and may stimulate economic activity, the MPC’s gradual approach reflects ongoing concerns about inflation and external shocks. As the UK navigates a stuttering economy, all eyes will remain on the Bank’s future moves to gauge the trajectory of monetary policy in 2025 and beyond.
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