The Bank of England’s Monetary Policy Committee (MPC) voted 6-3 to keep Bank Rate at 4.25% (this rate was reached when they cut by 25 basis points at their May meeting). This follows the decision this week of the US Federal Reserve to hold their interest rates and of the ECB earlier in the month to lower rates by 25 basis points.
As we noted three months ago when reporting on the March meeting, the only surprise about the MPC vote this week to hold the UK Bank Rate was in the ratio of the vote. Most commentators had expected a 7-2 split, but with Dave Ramsden (a Deputy Governor of the Bank) joining external members Swati Dhingra and Alan Taylor in voting for a 25 basis points cut (to 4.0%), the margin was closer than had been expected.
It was also clear, or at least as much as hints and suggestions ever are, that in the absence of any major changes, there is likely to be a cut in the Bank rate at the next MPC meeting in the first week of August.
This comes despite inflation running above both the central target (+2%) and the allowed range (2%, ±1%), although it is in line with the Bank’s expectations in the May edition of their Monetary Policy Report (this is published quarterly, at alternate MPC meetings). The latest minutes confirm that the MPC expects headline inflation to remain just below 3½% for the remainder of 2025, with the exception of a base related spike of +3.7% in September.
They clearly remain relatively sanguine about this above target pace of inflation. Their measures of pay growth continue to moderate, with the current level of inflation is due in part to external factors of regulated price increases and energy costs.
However, some notes of caution come from external events which could drive up energy prices and the sharp increase in food prices in May that could raise consumers expectations of inflation.
The US Federal Reserve held their rate steady at a target range of 4.25% to 4.5% for the fourth meeting in a row. Our colleagues at AMT note that the Fed Chair Jerome Powell cited the need to keep policy rates modestly restrictive to address a meaningful amount of inflation projected over the coming months. They went on to highlight that the median forecast for GDP growth in 2025 from members of the Federal Open Market Committee was downgraded again this quarter to +1.4%, below the committee’s estimate of the long-term trend released in March. Their forecasts for unemployment expanded slightly to 4.5%, and projections for inflation reached +3% through 2025. See https://www.amtonline.org/article/fed-holds-rates-steady-foreseeing-inflation-tight-labor-markets for more commentary from AMT on this decision.
For more details, you can get the Monetary Policy Summary and minutes of the MPC meeting from the Bank’s website at https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2025/june-2025 or request this from MTA.