LONDON – The Bank of England on Thursday lowered its benchmark interest rate by 25 basis points, bringing it down to 4%, its lowest level since March 2023. The move, which aligns with market expectations, marks the bank’s fifth consecutive rate cut since it began easing borrowing costs in August last year.
In its statement, the bank emphasized that “substantial disinflation” had occurred over the past two and a half years following previous external shocks, aided by its restrictive monetary policy stance. The recent progress in lowering inflation, it said, had justified the successive rate cuts. However, the Monetary Policy Committee (MPC) underlined its ongoing commitment to combating any lingering or emerging inflationary pressures to return inflation sustainably to its 2% target.
Consumer price inflation rose to 3.5% in the second quarter of 2025, largely due to higher energy, food, and regulated prices. While pay growth remains high, it has declined recently and is expected to slow further throughout the year. Services inflation has remained largely flat in recent months.
Despite the rate cuts, the bank remains cautious. It forecasts inflation will rise slightly to 4.0% in September before gradually falling back toward target. It warned that even a temporary uptick in inflation could pose risks to wage and pricing behavior. The MPC’s decision was reached by a narrow 5–4 vote, reflecting internal divisions over the pace of easing.
The bank also noted that UK GDP growth has remained sluggish and labor market conditions are gradually loosening. Although trade policy uncertainty has slightly decreased, domestic and global risks continue to weigh on economic prospects.
