The Bank of England continues with its quarterly cuts - 8th August 2025

The Bank (Base) Rate, which, on Thursday, the Bank of England cut by 0.25%, for the third time this year, taking it down to 4.0%, but it was a very close decision.

In the past fortnight both the US Federal Reserve and the European Central Bank have kept their interest rates on hold. Much to Donald Trump’s annoyance, the Fed did not consider it yet appropriate to make the first cut of 2025. In announcing its fifth consecutive no-change, the Fed said “Uncertainty about the economic outlook remains elevated.” Translated from Fedspeak, that meant Jay Powell et al were still waiting to see the impact of tariffs on US inflation.

The Fed’s reluctance to move was bolstered by what appeared to be a solid labour market…until the day after the rate announcement. That was when the Bureau of Labour Statistics (BLS) issued revised data, removing 258,000 new jobs that it had previously recorded as being created in May and June. Donald Trump’s reaction was to shoot the messenger of the bad news, firing the Commissioner of the BLS while accusing her of “rigged” numbers.

Things were quieter in Euroland when the ECB left rates unchanged on 24 July. In its statement the ECB followed a similar line to the Fed, noting “…the environment remains exceptionally uncertain, especially because of trade disputes.” In any case the ECB has now made eight cuts and, with the rate at 2%, has little room for further reductions. 

The Bank of England faces similar tariff uncertainty as the Fed and ECB. Although its announcement was on the day that (theoretically) most of the main US tariffs took effect, the outlook is far from settled. China’s temporary tariff agreement expires on 12 August (unless, as expected, it is extended) and Trump still has sectorial tariff investigations underway, e.g. on pharmaceuticals and chips. The President has also demonstrated that he is more than willing to use tariffs for non-trade reasons – Brazil and India being the latest examples – adding to uncertainty.  

The UK has what looks like one of the best ‘trade deals’, but it will not be immune from the global trade changes them stem from a more protectionist America. That, if anything, may be deflationary as manufacturers try to sell the production that is no longer heading stateside. 

Nevertheless, the Bank of England views the short term outlook as bringing higher inflation, with CPI now projected to peak at 4% in September – the month used for benefit and pension indexation. The Bank says that it “remains alert to the risk that this temporary increase in inflation could put additional upward pressure on the wage and price-setting process.”   
With that danger in mind, it is not surprising that Thursday’s decision to cut Bank Rate by 0.25% to 4.00% was tight. So tight that it went to an unprecedented two rounds of voting for the Monetary Policy Committee:

• In the first round there were four votes in favour of hold, four wanting a 0.25% cut and one calling for a 0.50% cut, meaning there was no majority for any action.

• A second round of voting was called on whether there should be a 0.25% cut and that produced a 5-4 majority.

The tightness of the vote almost certainly means that there will be no cut at the next meeting on 18 September. Thereafter the Bank will probably want to see the shape of the Budget before making any further change. The following meeting is currently scheduled for 6 November, coincidentally the day that the House of Commons starts its November recess.

Source: Techlink Professional