What's happened
The Bank of England is expected to cut interest rates by 0.25 percentage points to 4% at its August meeting, amid signs of economic slowdown, rising unemployment, and inflation concerns. The decision follows multiple rate cuts in 2025 and reflects cautious monetary policy amid global trade tensions and domestic economic challenges.
What's behind the headline?
The upcoming rate cut by the Bank of England will likely be a measured response to the fragile economic environment. The split vote within the MPC suggests ongoing debate about the pace of easing. Slowing growth, rising unemployment, and inflation above target point to a delicate balancing act: easing monetary policy to support growth without fueling inflation. The recent data indicating a contraction in the economy and a slowdown in the jobs market will reinforce the case for further rate reductions. However, persistent inflation pressures, especially food inflation, could temper the extent of cuts. The decision underscores the Bank's cautious stance, aiming to prevent a deeper recession while managing inflation expectations. The broader context includes global trade tensions and domestic fiscal policies, which will continue to influence monetary policy decisions in the coming months.
What the papers say
The Independent reports that the Bank of England is expected to cut rates to 4%, citing economic slowdown and inflation concerns, with a split vote likely. The Guardian highlights the sharp decline in UK construction activity and the service sector's slowdown, both supporting the case for easing. Bloomberg emphasizes the cautious approach, noting the split within the MPC and the influence of inflation data. These sources collectively illustrate a UK economy under pressure, with policymakers balancing growth support against inflation risks, amid global trade uncertainties and domestic economic challenges.
How we got here
The UK has experienced a series of interest rate cuts since August 2024, when the Bank Rate peaked at 5.25%. Economic growth has slowed, with contraction in April and May, and unemployment rising to 4.7%. Inflation remains above target, driven by food prices and global trade uncertainties. The MPC has signaled a cautious approach, balancing inflation risks against economic slowdown, amid geopolitical tensions and domestic economic headwinds.
Go deeper
- How will the rate cut affect mortgage rates?
- What are the risks of cutting rates now?
- Could inflation rise further despite the cuts?
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