BoE Cuts Rates to 4.25%, Split Vote Clouds June Outlook
- MPC split 5–4 as two members push for deeper cut, two for no change - BoE sticks to ‘gradual and careful’ approach despite inflation progress - Revised forecasts show weaker growth, temporary inflation bump - Markets push back June cut expectations; August now seen as more likely
The Bank of England cut its main interest rate by 25 basis points to 4.25% on Thursday, as expected, amid rising inflation expectations and speculation over a potential US-UK trade deal.
The Monetary Policy Committee voted by a majority of 5–4 to reduce the bank rate 25 basis points to 4.25%. With the cut nailed on, it was the vote split that raised eyebrows. The bank said two members, Swati Dhingra and Alan Taylor, preferred to cut rates by half a percentage point, while Catherine Mann and Huw Pill preferred to keep rates on hold at 4.5%.
Explaining its decision, the MPC cited a “backdrop of increased uncertainty”, but noted significant disinflation progress over the past two years. “That progress has allowed the MPC to withdraw gradually some degree of policy restraint, while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures,” it said.
Despite the division, the committee maintained its previous guidance, reiterating that a “gradual and careful approach” remains appropriate.
James Smith, an economist at ING, said that markets had been looking for a clear pivot signal. “Instead, the bank stuck to its previous script, simply reiterating that future cuts are likely to be ‘gradual and careful’. Changing that language would have heavily implied the bank was prepared to cut rates again in June – something we suspect it’s reluctant to do, or at least pre-commit to at this stage.”
Updated forecasts
As part of its Monetary Policy Report, the BoE also issued revised economic projections, lowering both growth and inflation expectations compared with its February assessment.
“In the May forecast, four-quarter GDP growth is projected to remain close to its current level of just over 1%, before picking up towards the end of the forecast period,” the bank said.
Headline consumer price inflation is expected to rise temporarily to 3.5% in the third quarter of 2025, driven largely by household energy bills and, to a lesser extent, regulated prices.
“The unemployment rate is projected to rise gradually to around 5% by the end of 2026, above its assumed medium-term equilibrium rate of just over 4.5%. Unemployment is somewhat higher than in the February Report, in part reflecting a slightly higher starting point suggested by the current LFS data.”
Source: Bank of England Monetary Policy Report
Markets temper rate cut expectations
Investors trimmed bets on a June rate cut even before the BoE press conference, following the MPC’s retention of its “gradual and careful” language.
TD Securities analysts said the messaging suggested a June cut was unlikely unless incoming data deteriorated significantly. “We therefore shift our forecast for rate cuts back by one meeting, essentially, with 25bps cuts expected in August, September and November 2025, taking Bank Rate to 3.50% by that meeting.”
When is a trade deal not a trade deal?
Later in the day, US President Donald Trump said a trade deal had been reached with the UK.
Trump described the agreement as “a great deal for both countries” and added that it would be “really great for the UK also.”
Key provisions included:
- A reduction in the US tariff on UK car exports from 27.5% to 10%
- Removal of duties on UK steel and aluminium, previously taxed at 25%
- Mutual access for beef exports
-Preferential treatment for UK pharmaceuticals in future regulatory decisions
Effectively, though, this deal is a 'heads of terms' agreement that needs legal scrutiny and Parliament's ratification.
Economists reacted with caution to the news. Paul Dales, chief UK economist at Capital Economics, said the deal would have a limited macroeconomic impact.
“The UK-US trade deal announced by President Trump and Prime Minister Starmer today won’t make a big difference to the UK economy as a whole, although it is more significant for certain sectors such as cars and steel. The upcoming UK-EU reset won’t be a game-changer either. That said, every little bit helps,” he said.
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- MPC split 5–4 as two members push for deeper cut, two for no change
- BoE sticks to ‘gradual and careful’ approach despite inflation progress
- Revised forecasts show weaker growth, temporary inflation bump
- Markets push back June cut expectations; August now seen as more likely
By Harry Daniels
LiveSquawk News
@HarryDaniels71
8 May 2025 | 21:00 GMT
The Bank of England cut its main interest rate by 25 basis points to 4.25% on Thursday, as expected, amid rising inflation expectations and speculation over a potential US-UK trade deal.
The Monetary Policy Committee voted by a majority of 5–4 to reduce the bank rate 25 basis points to 4.25%. With the cut nailed on, it was the vote split that raised eyebrows. The bank said two members, Swati Dhingra and Alan Taylor, preferred to cut rates by half a percentage point, while Catherine Mann and Huw Pill preferred to keep rates on hold at 4.5%.
Explaining its decision, the MPC cited a “backdrop of increased uncertainty”, but noted significant disinflation progress over the past two years. “That progress has allowed the MPC to withdraw gradually some degree of policy restraint, while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures,” it said.
Despite the division, the committee maintained its previous guidance, reiterating that a “gradual and careful approach” remains appropriate.
James Smith, an economist at ING, said that markets had been looking for a clear pivot signal. “Instead, the bank stuck to its previous script, simply reiterating that future cuts are likely to be ‘gradual and careful’. Changing that language would have heavily implied the bank was prepared to cut rates again in June – something we suspect it’s reluctant to do, or at least pre-commit to at this stage.”
As part of its Monetary Policy Report, the BoE also issued revised economic projections, lowering both growth and inflation expectations compared with its February assessment.
“In the May forecast, four-quarter GDP growth is projected to remain close to its current level of just over 1%, before picking up towards the end of the forecast period,” the bank said.
Headline consumer price inflation is expected to rise temporarily to 3.5% in the third quarter of 2025, driven largely by household energy bills and, to a lesser extent, regulated prices.
“The unemployment rate is projected to rise gradually to around 5% by the end of 2026, above its assumed medium-term equilibrium rate of just over 4.5%. Unemployment is somewhat higher than in the February Report, in part reflecting a slightly higher starting point suggested by the current LFS data.”
Investors trimmed bets on a June rate cut even before the BoE press conference, following the MPC’s retention of its “gradual and careful” language.
TD Securities analysts said the messaging suggested a June cut was unlikely unless incoming data deteriorated significantly. “We therefore shift our forecast for rate cuts back by one meeting, essentially, with 25bps cuts expected in August, September and November 2025, taking Bank Rate to 3.50% by that meeting.”
Later in the day, US President Donald Trump said a trade deal had been reached with the UK.
Trump described the agreement as “a great deal for both countries” and added that it would be “really great for the UK also.”
Key provisions included:
- A reduction in the US tariff on UK car exports from 27.5% to 10%
- Removal of duties on UK steel and aluminium, previously taxed at 25%
- Mutual access for beef exports
-Preferential treatment for UK pharmaceuticals in future regulatory decisions
Effectively, though, this deal is a 'heads of terms' agreement that needs legal scrutiny and Parliament's ratification.
Economists reacted with caution to the news. Paul Dales, chief UK economist at Capital Economics, said the deal would have a limited macroeconomic impact.
“The UK-US trade deal announced by President Trump and Prime Minister Starmer today won’t make a big difference to the UK economy as a whole, although it is more significant for certain sectors such as cars and steel. The upcoming UK-EU reset won’t be a game-changer either. That said, every little bit helps,” he said.