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The Bank of England on Thursday reduced UK interest rates by 25 basis points in a closer than expected decision. ‘It was a finely balanced decision,’ Governor Andrew Bailey said in a written statement. ‘Interest rates are still on a downward path but any future rate cuts will need to be made gradually and carefully.’ The widely expected quarter point cut takes base rate to 4.0% from 4.25%. Five members of the nine strong Monetary Policy Committee, including BoE Governor Andrew Bailey, voted for the 25 basis points reduction. Bailey was joined by Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor. Four MPC members, Megan Greene, Clare Lombardelli, Catherine Mann and Huw Pill, put the case for rates to stay on hold. The BoE said Taylor would have preferred to reduce bank rate by a heftier 50 basis points but voted for the quarter point cut. The BoE said a ‘gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate.’ ‘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,’ it added. The UK’s central bank held interest rates in June at 4.25%, after a 25 basis points cut in May. This followed interest rates cuts in February, and November and August 2024, when the base rate was first cut from 5.25%. In a statement, the BoE said CPI inflation is forecast to peak at 4.0% in September and there is a risk that the temporary increase could put additional upward pressure on the wage and price-setting process. ‘Overall, the MPC judges that the upside risks around medium-term inflationary pressures have moved slightly higher since May,’ the statement said. On the flip side, underlying UK GDP growth has remained ‘subdued’, consistent with a continued, gradual loosening in the labour market and a ‘margin of slack is judged to have emerged in the economy.’ In the August Monetary Policy Report, the BoE forecast UK economic growth to hit 1.25% this year, slightly better than the central bank’s previous estimate of 1%. However, this remains dependent on a sustained fall in the household saving ratio, the BoE stressed. The BoE estimates that GDP growth was 0.1% in the second quarter, with growth expected to pick up to 0.3% in the third quarter. The central bank said stronger GDP growth earlier in the year had, in part, been driven by international tariff or domestic tax-related front-loading. Shortly after the decision was announced, the pound traded at $1.3417 after standing at $1.3372 shortly before midday. Copyright 2025 Alliance News Ltd. All Rights Reserved.
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