Bank of England Holds Rates at 4.25%, Signals Possible Summer Cut

On Thursday, June 19, 2025, the Bank of England (BoE) maintained its key interest rate at 4.25%, aligning with market expectations, as announced by the Monetary Policy Committee (MPC) in a 6-3 vote. Despite three members advocating for a 25-basis-point cut, the decision reflects caution amid persistent inflation and escalating Middle East tensions. Governor Andrew Bailey emphasized that interest rates are on a “gradual downward path,” hinting at a potential cut as early as August, when the BoE will release its next Monetary Policy Report.

UK inflation eased slightly to 3.4% in May 2025 from 3.5% in April, but remains above the BoE’s 2% target. Core inflation also softened to 3.5% year-on-year, while wage growth slowed to 5.2% in the three months to April, the weakest in seven months. The BoE noted subdued GDP growth of 1.3% in Q1 2025, down from 1.5% in Q4 2024, alongside a rising unemployment rate of 4.6%, the highest since August 2021. These signs of a weakening labor market and softer growth bolster expectations for rate cuts in the second half of 2025.

However, global uncertainties, including Middle East conflicts and potential US tariffs, could sustain inflationary pressures, complicating the BoE’s path. Economists anticipate two quarter-point cuts by year-end, potentially lowering the rate to 3.75%. The next MPC meeting on August 7 will be closely watched for further signals on monetary policy easing. – Source: MIDF

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