London: The Bank of England on Thursday cut its benchmark interest rate by 25 basis points, matching market forecasts. The benchmark bank rate currently stands at 4%, its lowest since March 2023. The move marked the fifth rate cut since the bank began lowering borrowing costs last August.
According to Anadolu Agency, the Bank of England stated that there has been substantial disinflation over the past two and a half years, following previous external shocks, supported by the restrictive stance of monetary policy. This progress has allowed for reductions in the Bank Rate over the past year. The Committee remains focused on addressing any existing or emerging persistent inflationary pressures, aiming to return inflation sustainably to its 2% target in the medium term.
The bank reported that the path of disinflation in underlying domestic price and wage pressures has persisted, albeit to varying degrees. Twelve-month CPI inflation increased to 3.5% in the second quarter of 2025, due to developments in energy, food, and administered prices. Although pay growth remains elevated, it has recently declined and is expected to slow significantly over the rest of the year. Services consumer price inflation has been broadly flat over recent months.
The Bank of England emphasized its vigilance regarding how easing pay pressures might affect consumer price inflation. CPI inflation is forecast to increase slightly further, peaking at 4.0% in September, before falling back towards the 2% target. The Committee remains cautious about the risk that this temporary increase in inflation could exert additional upward pressure on the wage and price-setting process.
Underlying UK GDP growth has remained subdued, consistent with a gradual loosening in the labor market. Despite a decrease in trade policy uncertainty, the bank highlighted ongoing adverse domestic and geopolitical risks associated with economic activity. The decision to cut the interest rate was made by the bank's Monetary Policy Committee on a close 5-4 vote. Annual consumer inflation in the UK rose to 3.6% in June, marking its highest level since January 2024, up from 3.4% in May.