The Bank of England (BoE) cut its key base rate by 25 basis points to 4% in August – its lowest level since February 2023. This was the third rate reduction of 2025, following cuts of 25 basis points in May and February.
- Rates fell to their lowest level in over two years
- Policymakers has to take an unprecedented second vote
- CPI inflation is expected to rise to 4% YoY
The Bank of England (BoE) cut its key base rate by 25 basis points to 4% in August – its lowest level since February 2023. This was the third rate reduction of 2025, following cuts of 25 basis points in May and February2. The cut was implemented despite signs of intensifying inflationary pressures. The annualised rate of UK inflation rose from 3.4% to 3.6% in June, reaching its highest level since January 2024, and the BoE expects inflation to reach 4% in the next few months, stoked by higher prices for food and energy.
“The decision was made with the narrowest of margins”
The BoE warned that measures in the Spring Statement were likely to curb growth over the next year, and that higher employers’ National Insurance contributions and minimum wages are set to stoke inflationary pressures. Meanwhile, the labour market is weakening: the rate of unemployment rose from 4.5% to 4.7% in the three months to May, reaching its highest level since mid-2021, and job vacancies have continued to fall. Bank officials expect the unemployment rate to peak at 4.9%.
Although the cut was widely anticipated, the decision was made with the narrowest of margins and an unprecedented second vote was required. The Monetary Policy Committee (MPC) voted by five to four in favour of cutting rates by 25 basis points; four MPC members voted for no change, while one initially voted for a cut of 50 basis points before changing his vote to a 25 basis point reduction.
