Bank of England cuts interest rates for fifth time in a year to 4% despite

On Aug 7, 2025

By THIS IS MONEY REPORTERS and JAMIE BULLEN, LIVE COVERAGE EDITOR

Updated: 16:18 BST, 7 August 2025

The Bank of England has cut base rate by 0.25 percentage points to 4 per cent in a knife-edge decision that saw the Monetary Policy Committee forced into a second vote for the first time in its history.

It marked the fifth decrease in borrowing costs since the base rate peaked at 5.25 per cent in August last year and will help further relieve pressure for some mortgage holders and home buyers.

Today’s decision marked the first ever time the Monetary Policy Committee has been forced into a second vote, demonstrating the uncertainty over the UK’s economic outlook

The Bank of England’s MPC voted by a majority of 5 to 4 to reduce base rate, with four members of the committee preferring to hold a 4.25 per cent.

In the first round, MPC Alan Taylor voted for an even bigger cut to 3.75 per cent.

But the move comes amid fears over the state of the UK economy with inflation reaching an 18-month high in June by climbing to 3.6 per cent, while unemployment rose to 4.7 per cent, its highest level in four years, in May.

It follows a 0.1 per cent GDP contraction in May, following a 0.3 per cent drop the previous month, and signs of growing pressure on the jobs market.

Bank of England Governor Andrew Bailey said earlier this month that the Bank would be prepared to cut rates if the jobs market showed signs of weakening.

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BoE opts for ‘perplexing’ rate cut as inflation rises

Neil Mehta, portfolio manager at RBC BlueBay:

‘It seems perplexing that the Bank of England has opted to cut interest rates again at a time when the Monetary Policy Committee (MPC) acknowledges that upside risks to medium-term inflation have increased, and headline CPI is projected to approach 4 per cent in the coming months.

‘The 2% inflation target, a cornerstone of price stability, appears to have been set aside in favour of concerns about a perceived softening in the labour market.

‘However, this justification is far from convincing, as labour market data remain ambiguous—skewed by changes to employer National Insurance contributions, a declining inactivity rate, and ongoing difficulties in data collection.

‘Furthermore, the broader UK economy shows few signs of a significant slowdown that would threaten domestic demand.’

Boost for borrowers – but a blow to savers

David Hunt, head of savings at Investec Bank:

‘Today’s cut introduces uncertainty for savers and we anticipate a higher number to move their money into fixed rate products as they look to lock in attractive returns.

‘Investec Save’s research reveals that savers are voting with their feet, with 37 per cent planning to switch their funds into fixed rate savings accounts this year to beat rate cuts.

‘This is the fifth base rate cut since last summer and we predict there are still more cuts to come later this year and into 2026. Savers need to act quickly if they want to move their money to fixed rate accounts with higher rates as we’re likely to see these start to disappear from the market.’

Inside the unusual and historic Bank of England vote decision: JESSICA CLARK saw the three-way deadlock unfold…

Next rate cut in the balance ahead of Autumn Budget

Thomas Pugh, chief economist at RSM UK:

‘We still expect one more rate cut this year, but there is clearly a significant risk that the MPC chooses to “skip” it if there are signs that the labour market is improving or the budget looks inflationary.

‘The most interesting part of today’s decision was the vote split with five members voting for a 25bp cut and four voting for a hold after an initial 4-4-1 split.

‘That, along with the acknowledgement that the restrictiveness of monetary policy has fallen and the increase in the inflation forecast to 4%, puts a decidedly hawkish tint on the rate cut and raises the chances that the MPC chooses to “skip” a cut in Q4.

‘Looking ahead, the biggest question facing the MPC is to determine the degree to which the recent apparent weakness in the labour market is being driven by tax changes, or a weak economy and restrictive monetary policy.

‘Our judgement is that the labour market will continue to loosen over the rest of the year, providing enough cover for the committee to cut in November. However, that partly depends on what impact the budget will have on inflation.’

‘Competing forces of economic deterioration and sticky price rises obscure’ outlook for UK economy

Rob Morgan, chief investment analyst at Charles Stanley:

‘Setting interest rates at an appropriate level is rather like balancing the clutch on a car. Set the…