Bank of England cuts interest rates to 4.0%, as expected
By Michele Maatouk
Date: Thursday 07 Aug 2025
(Sharecast News) - The Bank of England cut interest rates on Thursday by 25 basis points to 4.0%, as widely expected.
This marked the fifth cut this year, leaving Bank Rate at its lowest level since March 2023.
With the rate cut as expected, the hawkish voting split is what caught investors' attention.
The Monetary Policy Committee voted 5-4 to cut the rate. Andrew Bailey, Sarah Breeden, Swati Dhingra and Dave Ramsden voted in favour of the 25 basis rate cut, while Megan Greene, Clare Lombardelli, Catherine L Mann and Huw Pill opted for the rate to remain unchanged.
Alan Taylor initially voted for a cut to 3.75% but in order to secure a majority decision, a second round of voting was held and the Committee was asked to vote on either a 25bps cut or for the rate to remain at 4.25%. Taylor then voted for the quarter-point cut.
"A gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate," the Bank said.
"The restrictiveness of monetary policy has fallen as Bank Rate has been reduced. The timing and pace of future reductions in the restrictiveness of policy will depend on the extent to which underlying disinflationary pressures continue to ease. Monetary policy is not on a pre-set path, and the Committee will remain responsive to the accumulation of evidence."
The Bank also revised up its forecast for inflation, saying it now expects consumer price inflation to peak at 4.0% in September - having previously forecast a peak of 3.7% - before falling back thereafter towards the 2% target.
"There has been substantial disinflation over the past two and a half years, following previous external shocks, supported by the restrictive stance of monetary policy," the BoE said. "That progress has allowed for reductions in Bank Rate over the past year. The Committee remains focused on squeezing out any existing or emerging persistent inflationary pressures, to return inflation sustainably to its 2% target in the medium term."
The FTSE 100 extended losses after the announcement, but sterling rallied against the dollar, ticking up 0.3% to 1.3401.
Neil Wilson, UK investor strategist at Saxo Markets, said: "To be honest am a bit confounded and bamboozled by this one - I don't think anyone had this particular vote split on their forecast: A cut of 25bps as expected but the 5-4 split has upset the market assumptions, sending sterling sharply higher and the FTSE 100 down some more.
"Sterling was bid up as the front end of the gilt yield curve drove higher as markets repriced futures. Not sure if sterling can retain this bid though as I feel the BoE is giving us a bum steer. And I would caution that the vote split is rarely a good guide for future policy direction - as I said in my preview - I wouldn't read too much into a split as it's not very often a great signal of future policy and rather reflects a lack of consensus on what remedy is needed in the here and now.
"Lots had thought the BoE should be upping the pace of cuts but instead today's statement has pushed back cut expectations and now not seeing another 25bps cut priced until March. Given the cloudy MPC vote it's going to be hard to give any really clear guidance to the market now on future policy path. Has it ever?"
Jake Finney, senior economist at PwC, said the voting split among committee members shows how finely balanced the decision was, but that the direction of travel is still clear.
"We anticipate one or two additional cuts this year, most likely in November and December, as the Bank proceeds with its cautious easing cycle that its forward guidance states will be 'gradual and careful'," he said.
"The devil, as ever, is in the detail. The statement that 'monetary policy is not on a pre-set path' underscores the Bank's data-dependent stance and signals that future rate cuts cannot be taken for granted. This caution is understandable given the Bank's own forecasts show inflation could rise to 4% in September, double the 2% target.
"Alongside the rate decision, the Bank made modest adjustments to its forecasts. It acknowledged that inflation has proven marginally stickier than anticipated, but the labour market has loosened more quickly, with wage growth declining further. Crucially, the medium-term outlook for the UK remains broadly unchanged. That matters because it's the medium-term picture that will shape the Chancellor's choices ahead of the Autumn Budget."
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