Please see the below update from Evelyn Partners regarding today’s Bank of England Monetary Policy Committee’s decision to cut interest rates by 0.25% to 4.25%:
What happened?
As expected by economists, the Bank of England (BoE) cut its base interest rate by 25 bps to 4.25%. The decision was made by a majority of 7 who voted for a rate cut, against 2 that wanted to keep them unchanged.
What does it mean?
While the macro picture has changed since the last Monetary Policy Committee (MPC) meeting in February to become more disinflationary, the BoE appears focused on cutting interest rates at a gradual pace of around one-quarter percentage point per quarter since it began easing last August.
This comes despite concerns over US trade tariffs and policy uncertainty that suggest downside risks to growth, a point made by the BoE governor Andrew Bailey at an Institute of International Finance event in Washington last month. Indeed, the latest PMI data indicates weak manufacturing and services sector activity. Subpar growth is feeding through to softer inflation data.
Furthermore, energy prices have also been trending south: the price of Brent crude oil is down nearly 30% from a year ago, while sterling appreciation against the US dollar should also act to reduce import prices somewhat. All these factors should put ease inflationary pressure in the near term.
Nevertheless, MPC members will be wary of cutting interest rates too quickly. First, it is not clear what impact US trade tariffs will have on inflation. Second, the latest nominal weekly earnings for the whole economy of 5.6% year-on-year (on a three-month moving average) is running uncomfortably higher than prevailing inflation. And finally, the latest YouGov survey of household inflation expectations has picked-up to 4%, its highest rate since October 2023.
Bottom Line
Looking forward, the MPC is expected to stick to gradual and careful guidance on interest rates by cutting once a quarter, as the risk of policy error remains high. Nevertheless, gradually lower rates should provide some insurance against downside risks to the economy and UK domestic stocks.
Please continue to check our blog content for advice, planning issues and the latest investment market and economic updates from leading investment houses.
Andrew Lloyd
08/05/2025