-           MPC votes marginally in favour of 25bp reduction 

-            Bank signals caution as inflation risks edge higher 

-            Market pares rate cut bets following hawkish statement

-            Weak labour market trumped by price growth concerns

By Harry Daniels
LiveSquawk News
@HarryDaniels71

6 August 2025 | 16:15 GMT

LONDON – The Bank of England delivered on expectations Thursday, lowering its main lending rate by 25 basis points to 4.00%. But signs of a divided committee have cast fresh doubt over whether another cut will follow this year.

The Monetary Policy Committee (MPC) voted 5–4 in favour of the reduction. Four members – Catherine Mann, Huw Pill, Megan Greene and Deputy Governor Clare Lombardelli – preferred to keep rates on hold, while Alan Taylor initially voted for a 50bp cut before switching to support Governor Andrew Bailey’s second proposal of a 25bp reduction, securing a majority.

The unusual manoeuvre drew attention. As JP Morgan’s Allan Monks noted: “This means the governor did not use his casting vote in the initial tie. But the fact that Swati Dhingra – the most dovish on the MPC – opted only for 25bp is noteworthy.”

In its statement, the Bank said: “Monetary policy has been restrictive for some time and has made a substantial contribution to the inflation target being met. That progress has allowed for reductions in Bank Rate over the past year.”

But a new sentence in the guidance hinted at more caution: “The restrictiveness of monetary policy has fallen as Bank Rate has been reduced.” This line, while seemingly obvious, spurred markets to pare back rate-cut expectations.

“There are now barely two cuts priced by next summer, and no further moves this year,” said ING’s James Smith. “Markets have taken it as a cue to price a higher end point for this easing cycle.”

The accompanying Monetary Policy Report featured only modest changes to the Bank’s forecasts.

GDP growth is expected to remain close to its recent average of around 1.25% before picking up later in the forecast period. The inflation outlook was revised slightly higher in the near term, with headline CPI now projected to rise to around 3.75% later this year – in part due to stronger-than-expected food prices.

The Bank noted that disinflation in domestic price and wage pressures had continued, “albeit to varying degrees.” However, it added that medium-term inflation risks had “moved slightly higher” since May, a shift that weighed on market expectations for another near-term cut.

Regarding the labour market, the unemployment rate forecast for end-2025 was revised up by 0.2 percentage points to 4.9%, though the 2026 estimate was trimmed.

Source: BoE MPR

Analysts said the decision, while in line with expectations, has increased the importance of upcoming data.

“Policymakers are evidently becoming wary about echoes of 2022, where a spike in food and energy prices prompted a much longer-lasting episode of higher inflation,” said ING’s Smith.

While the Bank acknowledged recent loosening in the labour market and weaker wage growth, its focus appears to have shifted back toward inflationary risks.

JP Morgan’s Monks said the bar for another cut this year, particularly in November, had risen: “Headline inflation is expected to increase in the next three reports, and the lack of any explicit reference to labour market softening adds to that sense.”

In his press conference, Bailey admitted there was “genuine uncertainty” about the future path of policy, citing upside risks to inflation and downside risks to activity and employment. “That gives a very asymmetric feel to his point about the rate path being uncertain,” Monks added.