Bankinter | The Bank of England (BoE) cuts interest rates by 25 basis points to 4%, in line with expectations, but maintains a cautious approach. The process of lowering rates continues, accumulating -125 basis points since it began at the August 2024 meeting. The decision was not unanimous and was very close, requiring a second vote for the first time in its history. In the first vote, four members of the Monetary Policy Committee (MPC) voted in favour of a 0.25 percentage point cut, one voted in favour of a 0.5 percentage point cut and four were in favour of keeping rates unchanged. In the second vote: 5 members of the MPC voted in favour of lowering rates by 25 basis points, compared to 4 who were in favour of keeping rates unchanged.
Bankinter’s analysis team’s view: This decision is logical since, despite the current high level of inflation, the central bank had room for manoeuvre (-125bp since the start of the cycle of cuts versus -200bp by the ECB), wages have been moderating and the latest economic and labour indicators show some slowdown.
Both Bailey and the official statement highlight the current uncertainty, which prevents visibility in the short term. Inflation is still rising, but the cooling of economic activity is complicating the central bank’s decisions, as can be seen in the close call at this meeting. Today’s tone delays expectations of further rate cuts by the BoE until there is greater clarity on the moderation of inflation and the impact of tariff tensions. The next cut is now expected to be in December 2025 (-25bp) to 3.75%, followed by an additional cut in Q2 2026 (-25bp) to close the cycle of cuts at 3.50%.
