Interest rates expected to decrease further as Bank grapples with a faltering labor sector
Bank of England Expected to Cut Interest Rates on August 7
The Bank of England's Monetary Policy Committee (MPC) is set to lower interest rates at its meeting on August 7, 2025, according to most economists and market predictions. The expected cut of 0.25 percentage points would bring the Bank Rate down from 4.25% to 4%.
MarketPulse, Investment Week, and MoneyWeek, among others, have forecasted this move, reflecting a more supportive stance to help the UK economy amid challenges such as the labor market. However, the MPC remains divided on the pace and extent of further cuts, with Fidelity's analysis highlighting internal disagreements.
The Bank of England has been cautious in its approach, favoring small, staggered reductions since rates peaked at 5.25% two years ago. This cautious stance is partly due to the persistence of inflation, which currently stands at 3.6%, higher than most MPC members consider to be neutral.
The slowdown in average earnings growth, excluding bonuses, to 5% in the period to May, has added to the pressure on the MPC to ease monetary policy. Bank of England Governor, Andrew Bailey, has stated that the Bank would be prepared to cut rates if the jobs market showed signs of weakening, as official data from the Office for National Statistics (ONS) showed the rate of UK unemployment increased to 4.7% in the three months to May - the highest level for four years.
However, some analysts like Jack Meaning from Barclays UK, predict a close vote split amongst the nine-person MPC due to "different interpretations of the recent flow of data". Meaning expects rates to be cut to 4%, but predicts a three-way vote split amongst the MPC, with two members predicted to vote to keep the level at 4.25%, and another two predicted to opt for a larger 0.5 percentage point cut.
Despite these divisions, the consensus remains that the MPC is likely to cut rates by 0.25 percentage points on August 7, 2025. This cut reflects an ongoing careful approach to balancing inflation control and economic support.
Sources:
- MarketPulse
- Fidelity
- Investment Week
- MoneyWeek
- Given the Bank of England's forecasted interest rate cut on August 7, 2025, businesses may find it easier to secure loans from the bank, potentially stimulating the economy.
- Investment decisions in the finance sector will likely be influenced by the expected cut in interest rates and the MPC's divided stance, as it may signal a delicate balance between controlling inflation and supporting economic growth.
